NEW YORK -- Despite a year rife with uncertainty due to the nation'sfiscal crisis, U.S. elections and concerns about the global economy, thebroad U.S. stock market performed surprisingly well, postingdouble-digit gains in 2012.
Stocks rallied 1.7% on the finaltrading day of the year amid signs that Democratic and Republicanlawmakers were closing in on an 11th-hour deal to avoid the bulk of theso-called "fiscal cliff," propelling stocks to a 2012 gain of 13.4%.
The13.4% gain in the benchmark Standard and Poor's 500-stock index camedespite a late-year swoon that was caused by fears that lawmakers wouldnot seal a deal by midnight to avoid economy-damaging tax hikes andgovernment spending cuts, better known as the fiscal cliff.
All ofthe major U.S. stock indexes finished 2012 solidly in positiveterritory, successfully climbing what Wall Street dubs the "wall ofworry" in the process. The biggest winner was the technology-dominatedNasdaq composite, which gained 15.9%. The Russell 2000, an index ofsmall-company stocks, rallied 14.6%. The S&P 500, a large-companystock gauge, was next with a gain of more than 13%. The worst performerof the four major indexes was the blue-chip Dow Jones industrialaverage, which rose 7.3%.
Most likely, 2012 will be bestremembered on Wall Street for the record run-up and subsequent 30%plunge of shares of Apple: the world's most-valuable company; thebotched and overhyped Facebook IPO in May that saddled millions of MainStreet investors with losses; a multibillion-dollar trading loss atJPMorgan Chase caused by a U.K. trader known as the "London Whale" whosebig risks went bad; the first real signs of a sustainable recovery inthe U.S. housing market, which catapulted home builder Pulte to a 188%gain and the No. 1 performing stock in the S&P 500; a repeat win forPresident Obama and a status-quo result in Congress on Election Daythat all but assures more political gridlock on Capitol Hill; a bold,game-changing move by the European Central Bank to keep the eurozonefrom breaking apart; China's ability to avert a steep economic dive;and, of course, the late-year political battle in Washington, D.C.,over how best to solve the nation's deepening fiscal crisis.
Yet,2012 was also a year when investors became familiar with a new term orinvesting concept - "risk on" or "risk off" - to describe the up, down,up, down roller coaster known as the stock market. The market's moves in2012 were increasingly determined by news headlines that causedinvestors en masse to either swing for the fences or play it super-safe.The year will also be remembered for the Facebook IPO, a losingexperience for most that reminded investors that no investment is a surething.
And 2012 will also be remembered as the year when theeconomy started to show signs that it could start growing again at amore normal rate, witnessed by growth of 3.1% in the third quarter of2012, its fastest pace since the final three months of 2011 and itssecond-best quarter of growth since 2009.
Stocks also got a boostfrom an improvement in the jobs market. In November, the unemploymentrate dropped to 7.7%, far below its 10% peak in October '09 and itslowest level since December 2008. The Federal Reserve also provided afloor of sorts under stocks. The Fed, led by Chairman Ben Bernanke,reiterated its plans to keep short-term interest rates low until the thejob market strengthened significantly. It also launched a fresh roundof purchases of U.S. Treasury bonds and mortgage-backed bonds, anunconventional policy known as quantitative easing which it launchedfour years ago, in an effort to keep borrowing costs low to supporteconomic growth and hiring.
But when you add up all the tail windsand subtract out all the headwinds in 2012, the stock market's gainsadded up to a paper gain of roughly $2.1 trillion for investors,according to Wilshire Associates.