How will Wall Street remember 2012?

Presented by Brian Greenberg

Stock market bears might characterize 2012 as a year of living dangerously, a year in
which Wall Street coped with major risks to the American and European economies.
Stock market bulls might end up remembering 2012 for what didn’t happen: Greece
had resisted a temptation to exit the euro, and it looked as if bipartisan negotiation
might save the U.S. economy from heading over the fiscal cliff. In late November,
stocks appeared on track for some solid yearly gains.

Key economic indicators improved. The year saw major rebounds in the housing
market and consumer confidence. By October, existing home sales were up 10.9%
from a year ago with the median sale price at $178,600; 11.1% better than in October
2011. New home sales volume in October had increased 17.2% in 12 months, and the
National Association of Home Builders builder sentiment index hit 46 in November,
sharply above the October 2011 low of 17. The Conference Board’s consumer
confidence poll hit a 57-month high of 73.7 in November, while the University of
Michigan’s November consumer sentiment survey reached a peak unseen since July
2007 at 84.9.1,2,3,4,5

By October, unemployment was at 7.9%, down 0.4% from January and 2.3% from
three years before. After a 0.2% reversal in May and a flat reading in June, personal
spending increased consistently through the third quarter, albeit with high summer
gas prices exerting a bit of influence on the gains. This stronger consumer spending
did seem to make a difference: our GDP was 1.9% in the first quarter, 1.3% in the
second and according to the federal government’s first estimate, 2.7% in the third. 6,7,8

Interest rates remained at historic lows. By Thanksgiving, Freddie Mac had the
interest rate for the 30-year FRM averaging 3.31%, and the latest Consumer Price
Index showed a 1.7% yearly gain (meaning inflation was still within the Fed’s target
range).7,9

Health care reforms withstood a high court challenge. The Supreme Court upheld
the Affordable Care Act of 2011 in a ruling that was not without controversy. The
court’s majority opinion characterized the law’s requirement for Americans to buy
health insurance in 2014 as a form of tax. As Chief Justice John Roberts wrote, “The
federal government does not have the power to order people to buy health insurance.
The federal government does have the power to impose a tax on those without health
insurance.”10

Stocks advanced in the face of major headwinds. A disappointing fall earnings
season weighed heavily on Wall Street in October and November, along with
persistent anxiety over the fiscal cliff, the slated combination of tax hikes and
spending cuts that economists warned could send America into a 2013 recession. Still,
these fears and others (concerning China’s economic productivity, Spain and Italy’s

bond yields and Greece’s financial peril) didn’t send stocks into negative territory
during the first 11 months of the year.11

In the first half of 2012, economists were wondering if the European Union might be
headed for a breakup. While German chancellor Angela Merkel and French president
Nicolas Sarkozy affirmed their support for the EU, detractors felt that the strongest
eurozone economies were shouldering more than their fair burden in the prolonged,
agonizing bailout effort. Prospects to keep the EU stable brightened when European
Central Bank president Mario Draghi pledged to do “whatever it takes” to sustain the
euro, with the ECB subsequently introducing an unlimited easing program paralleling
our own QE3.15

As November wrapped up, the Dow had advanced more than 10% in 12 months and
the NASDAQ had gained more than 16% year-over-year. The S&P 500 had also gained
about 16% in the past 12 months. Its YTD total return was above 14% as of the close on
November 28, with its consumer discretionary and financials sectors up more than 20%
for the year. The health care sector was up almost 15% YTD while the info tech and
telecom services sectors showed approximately 13% and 12% YTD gains. Utilities was
the only industry group in the red, down more than 4% YTD after nearly 11 months of
2012 market activity.11,12

Eyeing other global benchmarks toward the end of November, the solid 12-month
gains outnumbered the 12-month losses. A November 28 snapshot revealed the
following year-over year performance: Bovespa, +0.9%; Nikkei 225, +10.9%; Hang
Seng, +20.1%; Sensex, +17.7%; Shanghai Composite, -18.6%; Australia All Ordinaries,
+7.7%; CAC 40, +17.4%; DAX, +27.6%; FTSEurofirst 300, +18.0%; FTSE 100, 9.6%; MICEX
(Russia), -4.4%.13

Commodities. 2012 has been a positive year for many commodity futures – and a
superb year for a select few. According to data compiled by Reuters on November
28, wheat futures were +34.2% on the year, soybeans +20.7%, cocoa +18.9% and corn
+17.6%; natural gas was up 23.7% YTD. Silver was up 20.7% YTD, platinum 14.6% and
gold 9.6%. Copper and palladium had both advanced 2.6% for the year. The big YTD
losers included oil (-12.4%), sugar (-17.5%) and coffee (-36.6%). The U.S. Dollar Index
was virtually flat YTD after Thanksgiving (+0.1%).14

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Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The CAC-40 Index is a
narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The DAX 30 is a Blue Chip stock
market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The FTSE 100 Index is a
share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The Hang Seng Index is a
freefloat-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market
performance in Hong Kong. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE). The Nikkei
average is the most watched index of Asian stocks. The S&P/ASX All Ordinaries Index represents the 500 largest companies in the
Australian equities market. FTSEurofirst 300 Index includes the 300 largest companies ranked by market capitalization in the
FTSE Developed Europe Index. The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the
most liquid stocks traded on the Sao Paulo Stock Exchange.The MICEX Index is the real-time cap-weighted Russian composite
index. It comprises the 30 most liquid stocks of Russia’s largest and most developed companies. The SSE Composite Index is an
index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The US Dollar Index measures the
performance of the U.S. dollar against a basket of six currencies. Additional risks are associated with international investing,
such as currency fluctuations, political and economic instability and differences in accounting standards. All information is
believed to be from reliable sources; however we make no representation as to its completeness or accuracy. All economic and
performance data is historical and not indicative of future results. All indices are unmanaged and are not illustrative of any
particular investment. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher
is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to
engage the services of a competent professional. The publisher is not engaged in rendering legal, accounting or other
professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.

1- www.realtor.org/news-releases/2012/10/existing-home-sales-rise-in-october-with-ongoing-price-and-equity-gains [11/22/12]
2 – www.latimes.com/business/la-fi-mo-new-home-sales-20121128,0,3039964.story [11/28/12]
3 – www.nytimes.com/2012/12/20/business/economy/existing-home-sales-climb.html [11/20/12]
4 – www.reuters.com/article/2012/11/27/us-usa-economy-instant-idUSBRE8AQ0SP20121127 [11/27/12]
5 – www.reuters.com/article/2012/11/09/us-usa-economy-sentiment-idUSBRE8A810Q20121109 [11/9/12]
6 – www.ncsl.org/issues-research/labor/national-employment-monthly-update.aspx [11/2/12]
7 – articles.latimes.com/2012/oct/29/business/la-fi-mo-consumer-spending-personal-income-20121029 [10/29/12]
8 – www.esa.doc.gov/economic-indicators/economic-indicators-2/ [11/29/12]
9 – www.freddiemac.com/pmms/ [11/21/12]
10 – money.cnn.com/2012/06/28/pf/taxes/health_reform_new_taxes/index.htm [6/28/12]
11 – markets.on.nytimes.com/research/markets/overview/overview.asp [11/27/12]
12 – www.standardandpoors.com/indices/sp-500/en/us/?indexId=spusa-500-usduf–p-us-l– [11/28/12]
13 – markets.on.nytimes.com/research/markets/worldmarkets/worldmarkets.asp [11/28/12]
14 – www.reuters.com/article/2012/11/28/markets-commodities-idUSL1E8MS5T20121128 [11/28/12]
15 – http://www.reuters.com/article/2012/09/25/us-ecb-draghi-plan-idUSBRE88O09A20120925 [9/25/12]