|3/6/2013 10:50:00 AM|
2012 - Looking back
Brad BlackburnYes, I can read a calendar. I fully recognize that you are reading this in March, more than two months into 2013. But, you know what I always say: It's never too late to live in the past! That saying is probably not going to catch on.
Looking back on what turned out to be a pretty nice year in the markets, there were two major themes: The recovery of real estate and the end of the European panic (at least for now). Not only were these things key for the stock market, but they were important drivers for the economy as well.
However, before we get to 2012, let's go back to the last half of 2011. Between the original debt-limit debacle and the peak of the European crisis, things were pretty bleak. Over a two-week period in August of 2011, the S&P 500 dropped a painful 17 percent. However, that turned out to be rock-bottom. From there, the S&P 500 finished out 2011 rising more than 15 percent. The good times continued into 2012.
Buoyed on by employment reports that would inspire envy nowadays, the S&P 500 rose more than 12 percent during the first three months of 2012. The economic news was surprisingly strong. In January alone, 243,000 jobs were created. If you compare that to the 157,000 jobs that we created in January of 2013, you can see why the markets were so pleased. It was at that point, after 6 wonderful months of returns, I warned I didn't "expect the wonderful times to continue." Over the following two months, the S&P 500 dropped almost 7 percent. While I'd like to portray that as a brilliant prediction, I also predicted a "calm, boring" market over that time. A 7 percent drop probably doesn't qualify as "calm."
While the economy did slow significantly over that time, the panic in the markets was all about Europe. At the time, I wrote about Greece, Italy and Spain roughly the same amount as I mentioned The Fiscal Cliff over the last few months (sickeningly often). However, the pain didn't last very long. After only two weak months, the S&P 500 gained more almost 15 percent from June 1 until September 14. The good news that prompted the strong returns came in the form of two game-changing bailout maneuvers from the European Union. The effective result of those bailouts is that the E.U. now effectively stands behind both the financial institutions and the government debt of Europe. That was a very important step that will go a long way toward buying time for Europe to slowly dig out of the hole they are in.
While the markets were focused on Europe, real estate quietly began to show some signs of life. Everything from nationwide home prices, to building permits, home-builder confidence, to new home sales improved noticeably. More impressively, the nationwide inventory of real estate dropped to levels we haven't seen in more than ten years. That's important progress. While the rebound in employment has been very slow, the real-estate market seems to be snapping back quickly. Of course, the real estate market took years longer to recover, but it's happening. That has the potential to truly help our economy.
After the markets peaked in mid-September, the focus turned to the elections and Fiscal Cliff. As a result, the markets whipsawed quickly. The S&P 500 was down more than 7.5 percent into mid-November, but recovered most of that before the end of the year. Yes that's right -- even with all that drama around the Fiscal Cliff, the end result for the markets was essentially a wash.
In the end, 2012 was a very strong year for the stock market as the S&P 500 gained 13.4 percent. Much like this year, it started off with a bang. The question is, what will the remainder of the year bring? While I don't think the markets will continue at such a fast pace, I believe that the two biggest developments in 2012 -- improvement in Europe and real estate -- have set the stage for what will continue to be a solid 2013.
Brad Blackburn, CFP®, is the owner of Blackburn Financial, Registered Investment Advisor. Blackburn Financial is located at 121 Cottage Ave, Cashmere. He can be reached at 509-782-2600 or email him at firstname.lastname@example.org
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