published Wednesday, January 25th, 2012

Personal Finance: U.S. markets may rule again this year

By Chris Hopkins

Despite the general feeling that the U.S. stock market had a tough time in 2011, it turns out that we actually didn’t fare too badly. In fact, investors in the United States outdid the rest of the world by a pretty wide margin. And it seems likely that 2012 will be a repeat.

The S&P 500 finished the year flat on a price basis, but gained over 2 percent, including dividends, while the Dow Jones Industrials put up a respectable 8.4 percent gain. That doesn’t sound overly exuberant, but compared to the rest of the world it positively sparkled.

According to the Financial Times, global equity markets suffered a loss of $6.3 trillion in value during 2011, thanks to a series of crises, natural disasters, and concerns about the diminution of emerging nations’ growth rates.

The MSCI EAFE index of global non-U.S. stocks lost 15.74 percent for the year, while the Emerging Markets Index gave up 20.6 percent in value. That makes our single-digit gains look pretty good.

Interestingly, one of the few countries to turn in positive results besides the U.S. was beleaguered Ireland, up 7.75 percent as markets saluted its willingness to adopt decisive austerity measures. Greece, on the other hand, suffered a 65 percent plunge (on top of a 46 percent drop in 2010). Ouch.

Concerns about a slowdown of the Chinese juggernaut and speculation regarding the growing real estate bubble on the mainland were already on the table when the Japanese suffered a devastating earthquake and tsunami in March.

The widespread destruction and the subsequent meltdown at the Fukushima nuclear facility crippled the nascent expansion of the Japanese economy and sent supply shocks around the world. Consequently, Asian markets sank by more than 15 percent.

Meanwhile, on the Continent, the ongoing saga of fiscal incontinence continued. A lengthy and sometimes leisurely process of crisis response did nothing to instill confidence, and by year’s end the markets were assuming the eventual default and possible expulsion of at least one member of the union. European markets matched Asia blow for blow, dropping 15 percent.

It is ironic that the U.S. turned out to be the shining light (relatively speaking) despite a host of challenges on the home front.

Looking back over the year, there have been numerous signs of improvement in the U.S. outlook that are cause for optimism. It is still the case that the American economy is the most robust and resilient in the world, and is probably the horse to bet on again in 2012 as the litany of global woes continues.

Earnings growth for large American corporations continues at an impressive pace, slowing but still robust. Meanwhile, the jobs picture is brightening a bit, with unemployment declining from 9.4 percent to 8.5 percent during 2011. And small business owners are reporting modest improvement in their outlook for hiring in the year ahead.

Given the relative stability of the US capital markets and the high degree of trepidation regarding the rest of the world, America may still be the best bet and 2012 may look a lot like 2011.

Get answers to financial questions on Wednesdays from our columnists who work in the financial services industry. Christopher A. Hopkins CFA, is a vice president at Barnett & Co. Submit questions to his attention by writing to Business Editor Dave Flessner, Chattanooga Times Free Press, P.O. Box 1447, Chattanooga, TN 37401-1447, or by emailing him at dflessner@timesfreepress.com.

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