Investors had plenty to keep them jittery in 2011. There were the earthquake and tsunami in Japan, economic woes in Europe, and, here at home, politically tinged fiscal showdowns in Washington over deep government spending cuts.
Still, the stock market will enter 2012 in a spot that wasn't too different from late 2010.
Looking ahead, economic and stock market observers see uninspiring U.S. economic growth, financial problems in Europe, and the health of Far East markets looming large in investors' minds. The stock market has come a long way since it toppled three years ago, but the future remains cloudy, they said.
"At the end of the day, the largest economy in the world, the U.S, continues to recover," said Alan Gayle, senior investment strategist with RidgeWorth Investments in Virginia. "The pace is painfully slow, and the threats we were worried about last year have evolved into new threats. Visibility remains murky."
The stock market ended a turbulent year with a fizzle — all pain and no gain. The S&P 500 index, a broad measure of major companies, finished at almost exactly the same spot as 2010, with only a few hundredths of a point difference, at 1,257 points. The Dow Jones industrial average closed at 12,217 points, up 5.5 percent for the year. And the Nasdaq composite index, finished at 2,605 points, down 1.8 percent.
The big financial news for 2011? "That the United States private sector managed to get through without disaster," said Peter G. Morici, a University of Maryland Smith School of Business professor and former chief economist at the U.S. International Trade Commission.
"I'm serious," Morici continued. "This economy is not being well-managed. The economy is treading water, and so is the market."
Since the recession, U.S. companies moved quickly to stabilize their businesses through job- and cost-cutting moves, and the overall economy has chalked up sluggish growth. Investors were forced to keep a wary eye on the public sector last year, at home and abroad, as central banks and political leaders grappled with heavy government debt and unpopular austerity measures in the United States and Europe.
Expect more of the same trepidation this year, analysts say.
Investors and economists are worried that Europe will lurch into recession in the first half of 2012, due to its debt crisis, and are watching for signs of how the U.S. would fare if that happens. Overall, though, U.S. company stocks remain strong when compared to those of other developed countries.
Standard & Poor's, which manages the S&P 500 index and tracks worldwide markets, found that the U.S. was the third-best global stock market last year in terms of financial returns, behind Indonesia and the Philippines.
For now, part of the problem for investors and Wall Street, analysts said, is that the slow U.S. economic growth rate is leaving them tentative. The nation's economy grew at a rate under 2 percent in 2011, and some economists are predicting slightly more than 2 percent growth in 2012. Before the recession hit, the gross domestic product was growing at around 3 percent.
"We're having a hard time wrapping our head around the notion of what slow growth looks like," Gayle said.
In Maryland, the state's mix of biotechnology, technology, finance, manufacturing, real estate and federal contracting companies bore mixed results in 2011. Looking ahead, investors and analysts will be monitoring the impact of federal spending cuts on the state's deep employment base of federal agencies and government contracting firms.
The Bloomberg Maryland Index, a price-weighted list of companies with operations in the region, showed that share prices for 30 firms had performed better in 2011 than in the previous year. Forty-five of the 75 companies in the index were down from the previous year. Overall, Maryland companies tracked by the Bloomberg index were down 3 percent for the year.
Under Armour, Federal Realty Investment Trust, Lockheed Martin, W.R. Grace, and OpNet Technologies led the pack in stock growth. Meanwhile, Human Genome Sciences, United Therapeutics, Medifast, Corporate Office Properties Trust and Legg Mason trailed the pack, according to the Bloomberg index.
In early 2011, investors gladly saw their equities and 401(k) holdings gain in value, and the bulls returned to the market. Indeed, in early February, the Dow closed above 12,000 for the first time since mid-2008, even as investors kept an eye on uprisings in the Middle East and Northern Africa.
The fallout from the revolutions in Egypt and Libya continues, but it hasn't contributed to the U.S. market's volatility in several months, experts said.
The first real test for the U.S. stock market came soon after March 11, when a devastating one-two punch of an earthquake and a tsunami struck eastern Japan, killing more than 15,000 people and disrupting the economy of the nation's fourth-largest trading partner.
The Dow lost 500 points over the course of a week, but soon recovered. Some analysts said investors seeking stability returned to the U.S. stock market after the volatility in Japan and the Middle East.
It also helped that Congress and the White House averted a government shutdown in early April with a deal to cut $38 billion from domestic spending programs for the rest of the year.
Showdowns between the Republican-controlled House and the Obama administration will likely continue through 2012 — a presidential election year — and will grab investors' attention, analysts said.
The Dow Jones industrial average hit its 2011 peak on April 29, in the days before Federal Reserve Chairman Ben Bernanke held the first event of its kind: a public Q&A with reporters.
The stock market responded positively, but investors were cautious as the U.S. economy's gross domestic product was still only growing at under 2 percent. (Going into the new year, investors aren't sure what more Bernanke and the Fed can do to stimulate the economy, as interest rates remain low.)
Recession fears came and went throughout the year — and such anxieties remain in the background at the beginning of 2012. Last spring, for instance, economists worried that the country could be slipping back into recession. The high unemployment rate and weak performances from the service and manufacturing sector were eroding investor confidence.
But starting in late June and lasting through the first three weeks of July, the market enjoyed another high ride.
Then, in early August, the Dow lost around 2,000 points — wiping out trillions of dollars in U.S. market value. It was a harrowing time for investors and portfolio managers.
It was also the start of several months of jagged swings, as investors were buffeted by economic woes in Europe and tough news at home. Investors wanted out of the market as talk of another 2008 market crash made the rounds from Asia and Europe to the United States.
Significant news events can be seen in the spikes in the market, in the charts of all three major indices.
Lawrence Raifman, a forensic clinical psychologist and instructor at Johns Hopkins University who is teaching a course this winter on "The Psychology of Financial Crisis," said that financial markets can operate like fads, with investors adopting a herd mentality that over-emphasizes the present moment and displaces long-term thinking.
"From a psychological point of view, we seem to get caught up in the here and now, the present," Raifman said. "But markets are supposed to be an indicator of future returns and activities."
In a historic move in early August, Standard and Poor's, one of the major credit rating agencies, downgraded the U.S. government's debt rating to AA+ from the highest AAA grade, as the nation faced mounting debt and congressional gridlock.
That sovereign credit downgrade was disruptive enough that President Barack Obama took to the airwaves to try to persuade the world that the U.S. is "and always will be a AAA country." Despite his assurances, the markets tumbled.
Yet, investors continued to flock to the security of U.S. Treasury bonds, despite the credit downgrade, and investors saw the potential long-term impact on the stock market as muted, according to analysts.
By the end of the year, the stock market seemed to regain its footing and climb out of the ruts it fell into in August and September.
"The bright spot [in 2011] was really how companies did," said Charles Shriver, a vice president and portfolio manager at T. Rowe Price Group Inc., a Baltimore-based investment firm. "The corporate profit environment has been resilient, despite weak economic growth."
Brian Greenberg, head of tax and financial planning firm Brian Greenberg and Associates in Marlton, N.J., said the stock market seemed more easily driven by news in 2011 — and he didn't see that as a positive sign.
"The buy-and-hold people killed the active traders because there were so many gyrations that were all news-driven," Greenberg said. "A lot of people lost a lot of money in the stock market because they were on the wrong side. There were no discernible trends."
He said investors are eyeing a "horrendous" economic recovery, and have been forced to pay greater attention to the federal government's actions because of its active role in managing the economy since the recession and financial crisis.
With a presidential election looming, Greenberg expects investors to continue to view the market at least partly through U.S. politics and potential leadership changes in November.
"By its actions, the government has become a market-maker," said Greenberg, who added that he thinks the government's actions are only slowing the economic recovery. "It's now in the forefront of fixing the economy, and that's what investors are feeding off of."
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