2012 in Review: A Survey of Market Trends and Figures

Investors had reason to cheer in the early months of 2012, the best quarter for U.S. securities in almost 14 years. The Dow advanced for the sixth straight month in March, NASDAQ had its best quarter since 1991, and the S&P finished up 12%.¹

Overall appetite for riskier investments increased worldwide with investor optimism. The CBOE VIX, which measures volatility and is often referred to as the “fear index,” fell 33.76%. The data stream from the US continues to entice foreign investors at a time when indicators from their regions are underwhelming.¹

While the first quarter rewarded prudent investors, notable economic indicators project a slowing of some 1st quarter momentum. Already, lower earnings estimates for the quarter ahead are sobering.¹

The US unemployment rate officially fell to 8.3% in January and stayed there through February – the lowest since February 2009.

But while official employment figures improved year over year, labor force participation was reported at 63.8%, nearing a 30-year low. March’s jobs increase came in at a disappointing 120,000 jobs, the worst in five months. And while the labor market will lag behind any economic recovery, the current pace would take until 2017 to replace all jobs lost since the start of the last recession. ^2,3

On March 16, retail gas prices were up 16.4% YTD. The rise had wide ranging affects throughout the US economy. In February alone, energy costs rose 6% for Americans, all of which was attributed to gasoline prices.^4,5

Import prices for March were up 3.4% from March 2011, while petroleum costs were up 9.6% year over year. The Fed issued a warning that the bump in fuel costs could push up inflation temporarily. Though in the same breath, officials stated that price increase would ultimately meet their 2.0% annual target.⁶

Amidst sovereign debt concerns across Europe, Greece’s struggles grabbed the most headlines. A third rescue package of €237 billion was implemented in February.⁷

In March, the IMF assured markets it had raised €700 billion to fund a backstop against contagion. And the European Central Bank provided cash infusions to the EU’s commercial banks in December and March.¹

But Europe has many more challenges to address. The unemployment rate of Germany, at 5.7%, was the only bright spot. France’s 10% rate, modest when compared to those of Portugal, Greece and Spain, contributed to a EU jobless rate of 10.8% for March.^8,9,10

Speculation continued to swirl around China’s hard or soft landing. The trend of slowed growth continued from Q4 2011 into 2012.¹¹

In February, the yuan reached an all time high against the dollar. China’s central bank expects a 3% appreciation this year for its currency. If accurate, the price of imports would be driven up for the Chinese consumer, prompting a ramp up in exports, lower unemployment and a renewed price advantage in global markets.^11,12

Surprisingly, the world’s best performing index of the quarter belonged to Japan. The Nikkei 225 rose 19.3%, according to the Wall Street Journal.⁸

Overall, a stronger than expected first quarter offered investing opportunities. Looking forward, we remain cautiously optimistic as we monitor multiple factors affecting the economy.