In a year characterized by volatility due to concerns over the impending fiscal cliff and questions about the debt ceiling, U.S. markets performed surprisingly well overall. Taking dividend payments into account, the NASDAQ returned 16%, the S&P 500 15%, and the Dow Jones Industrial Average 10%. This strong performance occurred in the midst of a worsening European debt crisis, stalling U.S. economic growth, and political gridlock in Washington. Over the first quarter of 2012, stocks posted strong gains, only to have them erased in the second quarter as the European crisis intensified and technical failures marred the third largest ever IPO in May as Facebook went public. In June, however, ECB president Mario Draghi worked with the EU to provide bailout loans to Spain’s embattled banks, which culled investors’ fears somewhat. With rumors abounding that the Fed would initiate a new round of quantitative easing in the third quarter, stocks began to get back on track. In September, Fed chairman Ben Bernanke announced QE 3 and the S&P reached a 5-year high of 1466. Investors remained bullish into the New Year, despite decreased corporate earnings across the board.
Financial stocks led the charge over the year, gaining 26% and reversing a freefalling trend. Banks continued to clean up their balance sheets and despite rogue trading mishaps and rate-fixing scandals, the sector performed very well overall. Looking ahead, volatility will likely come down as politicians come to a consensus over the debt ceiling, although a permanent fix does not seem imminent. Investors are fleeing bonds for equities, and many market prognosticators see 2013 as being a year of record highs for stocks.
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Scott Lamson
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