Jan 6, 201201:02 PMBlog: Alaska's Eye on Wall Street
Week in Review, Dec. 30, 2011
Stocks ended a holiday shortened week up +0.3% with the S&P 500 closing at 1,258 - about where it started the year. That brings the total return (including dividends) on the S&P 500 to +2.2% for 2011.
Meanwhile, yields on 10 year Treasury bonds ended the year at 1.88%, falling over 140 bps in 2011 and providing an eye-popping total return (including coupon income and price gains) of +16.9% for the year.
The foreign equity markets (EAFE) lost -13.3% in 2011 mainly due to the European debt crisis. We'll have much more on all of this in our annual outlook newsletter in mid January.
Europe seems to be settling down. The ECB recently provided $628 billion in cheap 1% three year loans to over 500 euro-zone banks which has been used to purchase government debt (Italy, Spain, etc). This "carry trade" should make money for the banks and help out governments rolling over their debt. In fact auctions of Italian debt last week went very well with financing costs much lower than a month ago.
Most U.S. economic data last week pointed to continued growth although the Case-Shiller home price numbers were down about -3% year over year. Home prices are down -32% since the housing bubble burst 5 years ago and are back to 2003 levels.
Consumer confidence rebounded sharply and jobless claims jumped higher but remain in a downward trend suggesting a better labor market ahead. The claims four week moving average is the lowest in three years. This Friday (January 6) we will get the monthly employment data for December. Economists expect a slight uptick in the unemployment rate to 8.7% and 150,000 new jobs.
It's caucus time in Iowa this Tuesday. This will no doubt whittle down the Republican field and give us better clarity on the potential nominee.
FT Alphaville ends the year with these provocative predictions for 2012:
Yields will move inversely to prices
Volatility will go up...and down
Asset correlations will stay between -1 and +1
From all of us at APCM, have a Happy New Year and a prosperous 2012 everyone!
Jeff Pantages, CFA
Chief Investment Officer
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