In the final tally, despite big climbs and falls, unexpected blows and surprising triumphs, all the hullabaloo proved for naught. On Friday, the Standard & Poor’s 500 index closed at 1,257.60. That’s exactly 0.04 point below where it started the year.
“If you fell asleep Jan. 1 and woke up today, you’d think nothing had happened,” said Jack Ablin, the chief investment officer of Harris Private Bank.”
It was a year when U.S. companies were supposed to run out of ways to make big profits. But they didn’t. It was a year when the U.S. lost its prized triple-A credit rating, which should have spooked buyers of its bonds. Instead investors bought more of them and made Treasurys one of the best bets of 2011.
Despite disappointing returns in 2011, the last three months of the year were impressive. The S&P 500 rose 11 percent. The Dow Jones industrial average, comprising 30 big stocks, climbed 1,344 points, or 12 percent. That was the largest quarterly point gain in its history. The Dow closed up 5.5 percent for the year.
For stock investors, 2011 wasn’t supposed to end this way.
At the start of the year, the Great Recession was officially 1½ years behind us and the recovery was finally gaining momentum. The economy added an average of more than 200,000 jobs a month in February, March and April. And U.S. companies kept reporting big jumps in profits.
The stock market roared in approval. On April 29, the S&P closed at 1,363, double its recessionary low of March 2009.
Then manufacturing slowed, companies stopped hiring and consumer confidence plummeted.Gridlock in Washington didn’t help. The Dow Jones industrial average swung more than 400 points four days in a row.
On Oct. 3, stocks had dropped 19 percent from their April high. That was just one point short of an official bear market.
Since then, U.S. housing starts have increased, factories are producing more, unemployment claims fell and U.S. economic growth rose.
The good news pushed stocks up in the closing months of the year.
The biggest winner in the Dow was McDonald’s Corp, up 31 percent for the year. Bank of America Corp. was the worst performing stock, down 58 percent.
Including dividends, the S&P 500 returned 2.11 percent for 2011. That means investors lost money after inflation, which was running at 3.4 percent in the 12 months ending in November. At least they’re getting more than investors in the benchmark 10-year Treasury note, which currently pays a yield of just 1.88 percent.
The outlook for stocks in the new year is either great or grim, depending on your focus.
Italy has to repay holders of $172 billion worth of it national bonds in the first three months of 2012. It will do so by selling new bonds. The question is how much interest they will demand to be paid to compensate for the risk they’re taking on. If they demand too much, fear could spread that the country will default. That could sink stocks.
After Italy was forced to pay unexpectedly high rates in a bond auction earlier this month, stocks fell hard around the world.
There are also questions about whether China’s economy is slowing too much and whether the U.S. politicians will agree to raise the debt ceiling again in 2012 or extend Bush-era tax cuts.
On the bright side, stocks seem to be well-priced.
The S&P 500 is trading at 12 times its expected earnings per share for 2012 versus a more typical 15 times. In other words, they appear cheaper now. Partly based on that many strategists, stock analysts and economists expect the index to end next year at 1,400 or more, up 10 percent or so.
The Standard & Poor’s 500 index rose 5.42 points, or 0.4 percent on Friday. The Dow Jones industrial average lost 69.48 points, or 0.6 percent, to 12,217.60. The Nasdaq composite index fell 8.59 points, or 0.3 percent, to 2,605.15 The Nasdaq is down 1.8 percent for the year.
Trading has been quiet this week with many investors away on vacation. Volume on the New York Stock Exchange has been about half of its daily average. Markets will be closed Monday in observance of New Year’s Day.