The markets have put 2012 behind them. It was an exciting year. It was a crazy year. It was a maddening year. And if you invested in stocks, you probably made money.
Apple did briefly slip the surly bonds of Earth and touch the face of financial gods in 2012, busting through $700 a share and coming within striking distance of a $1 trillion market capitalization. It closed out 2012 on a strong note, up almost four and half percent, to $532.17.
If you'd bought a single share at the beginning of the year, you'd have seen a better-than-31-percent return on your investment.
That was more than double the S&P 500's return, a very respectable 13-plus percent, and much better than what the Dow managed, a mere 7.25 percent (which, it should be noted, is still more than three times the rate of inflation, currently running at about 2 percent).
Now, if you wanted that Apple return, you'd have been forced to endure some knee-knocking volatility — and you might be cursing yourself for not selling when the stock was trading at its yearly high.
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Traders work in the oil options pit on the floor of the New York Mercantile Exchange on August 11, 2011 in New York City.
First the Dow hit 13,000. And almost immediately, as if it we suffering a financial bout of triskaidekaphobia, the market retreated. And then it spend the week basically going nowhere, despite the launch of a new Apple iPad, a solid February jobs report, and a sense that the worst might be over for Greece and that whole neverending European debt crisis.
What's are the markets going to need to hit 13,000 again — and climb higher? Well, it's hard to say. Better GDP growth would help. But the real secret sauce will have to come from the Federal Reserve, which could do another round of "quantitative easing" or employ some new form of monetary policy — perhaps "sterilized" easing, with the focus on preventing inflation from creeping back into the economy.
Is Wall Street trying to force the Fed's hand? Maybe. But for the moment, it looks as if the Fed isn't quite ready to have its hand forced.
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We got a nice bump in the markets at the dawn of the new year, but ever since then, results have been...well, pretty unremarkable. The Dow has been bumping along in a fairly narrow range, around the 12,400 level. So where's the vaunted "January Effect"— the idea that people sell stock in December to book some tax losses, then pile back in when the markets re-open after the holiday season.
The answer comes in one word: Europe.
Wall Street isn't going to budge until it either gets some great earnings news from U.S. companies or sees some progress on Europe righting its listing financial states. This is from AP, via the Washington Post:
Greece, Ireland and Portugal have all been bailed out but the fear in the markets is that much-bigger Italy and Spain may end up needing financial assistance. The yield on Italy’s benchmark ten-year bonds on Monday continued to hover around the 7 percent mark, widely considered to be unsustainable in the long run.
On the growth front, the two leaders told reporters that European nations should compare the continent’s best labor practices and implement them, as well as figure out how to use European funds to create jobs.
Their focus on the wider economy has come as mounting signs the 17-nation eurozone is heading for a recession have emerged over recent days, including figures Monday showing a bigger than anticipated 0.6 percent decline in German industrial production in November.
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The final day of trading on the stock markets had ended. The Dow closed down about 70 points. But let's take a look back on 2011, a volatile economic year if there ever was one. For the year, the DJIA was up 5.6%, despite all the turmoil. If you had put $1,000 in an index fund that tracks the Dow, you would have made fifty-six bucks! More importantly, you would have stayed ahead of the rate of inflation or about 3.4 percent. So your return would have legitimately increased your wealth.
For comparison, you would have had a tough time getting even 1 percent on a 12-month CD.
This doesn't factor in dividends — the money you get paid to hold a company's stock — and if historical averages are anything to go by, simple stock price appreciation in the Dow suggests that a percentage slightly below 5 percent is to be expected (although there will be both much better and much worse years). So in the end, 2011 beat the historical return and beat the rate of inflation.
My latest appearance on "America Now with Andy Dean," this time to talk about yesterday's relatively positive economic news, which caused the Dow to rise almost 500 points. As always, a lot of fun to go back and forth with Andy and a good chance to summarize my DeBord Report post from Wednesday about the eurozone crisis, central banks, the impending jobs report, housing data, and whether China will be able to hold its own economy together.
I'm on at about the 31:00 mark. Enjoy!