For stock market in 2011, the world was flat
Stock market, as measured by the S&P 500, ends the year just as it started. But stock market in fourth quarter staged an impressive rally, which could set the tone for 2012.
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Since then, U.S. housing starts have increased, factories are producing more, unemployment claims fell and U.S. economic growth rose. And companies are still generating impressive profits. Those in the S&P 500 have increased profits by double-digits percentages for nine quarters in a row.
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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.
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