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SUNDAY, JANUARY 1, 2012
business
You thought 2011 was tough for US? WALL STREET WEEKLY OUTLOOK NEW YORK: Shaky Europe. Political gridlock. Volatile markets. Familiar themes for those who lived through 2011, and investors should be ready to revisit them next year. With a spiraling debt crisis in Europe, political upheaval around the world, and crumbling creditworthiness in major industrial nations, 2011 was a tough year to know where to invest. 2012 is unlikely to offer much respite. The S&P 500, a measure of the biggest US companies’ market value, spent much of the year getting pushed up and down, flummoxing shorts and longs - and scaring Moms and Pops away from stocks. It ended 2011 at 1,257.60, down 0.04 of a point. But the S&P 500’s tepid performance was encouraging, compared with other world equity markets. The United States may still be seen as a safe haven, though even that looks uncertain. For every rally built on improving economic figures this year, selloffs were never far away on worries the European debt crisis would eventually drag the continent into a recession and perhaps the United States as well. That could continue in 2012. China and other fast-growing emerging markets can no longer be leaned on as those economies slow. In 2011’s last half, the poorest-performing sectors outside of banks were most connected to global growth - materials, energy and industrial companies. “There is a growing realization that the global economy is in jeopardy,” said Bruce Bittles, chief investment strategist at Robert W Baird & Co in Nashville. “There is uncertainty in every corner of the world.” That uncertainty fed substantial volatility in 2011. Despite the S&P’s flat performance this year, there were 66 trading days when stocks moved in a 2 percent range. In 2008, when Lehman Brothers collapsed during a global financial crisis, there were more than 130 trading days when stocks swung that much. But that led to a flight from equi-
ties by retail investors. US equity funds had outflows in every month since May. More than $483 billion left US mutual funds in 2011 through the year’s second-to-last week, even though the US market outperformed foreign stocks late in the game. BEATING GLOBAL RIVALS The S&P 500 ended the year off a scant 0.003 percent, the closest it has come to unchanged since 1947, according to Standard & Poor’s. The Dow Jones industrial average finished 2011 with a 5.5 percent gain, while the Nasdaq Composite Index slipped 1.8 percent. In contrast, the MSCI world stocks index fell 9 percent, while the FTSEurofirst-300 index slid nearly 11 percent. The darlings in the emerging markets fared the worst. China’s Shanghai Composite index lost 22 percent, India’s BSE sank 25 percent, and Brazil’s Bovespa dropped 18 percent. Strategists say the US stock market may benefit from reasonable economic growth and attractive market valuation. The S&P 500 is expected to rise 6 percent by the end of 2012, according to the most recent poll of Wall Street strategists. When Wall Street gets back to work on Tuesday, it will face a holiday-shortened week and a slew of economic indicators. The US stock market will be closed on Monday in observance of New Year’s Day. The most crucial numbers will come on Friday with the release of the government’s non-farm payrolls report. Economists polled by Reuters expect a December gain of 150,000 jobs, compared with an increase of 120,000 jobs in November. Volatility is likely to persist through early 2012 because of the uncertainty in Europe and rising concern about slowed earnings growth due to recent revisions. The S&P 500’s price-to-earnings
ratio - what investors are willing to pay for a dollar of earnings - is under 12, below the 25-year average of 15. In weaker markets like Germany’s DAX, the figure is below 9. “We’re building in a massive recession into these numbers,” said Marc Pado, US market strategist at Cantor Fitzgerald & Co in San Francisco. US companies cutting earnings’ outlooks recently outpaced those raising theirs by the greatest ratio in 10 years. Some sectors, such as materials, have seen a sharp drop in forecasts for the fourth quarter, Thomson Reuters data showed. Last week, downbeat earnings from Oracle Corp shook confidence in the tech sector’s health before the quarterly earnings season’s start in January. Oracle joined a growing list of companies, including some of technology’s biggest names, whose results and outlooks have set off alarm bells. Next year, S&P 500 earnings are seen rising 9.9 percent, down from an estimate of 13 percent in October. Many economists believe the euro-zone is already in recession. They forecast that the economies of the 17-nation bloc will stagnate in 2012 after contracting in this year’s fourth quarter and the first quarter of the next. Investors are worried that Italy and Spain will have to keep refinancing borrowings at unsustainable levels early next year, which could escalate the crisis. The correlation between the US stock market and the euro skyrocketed in 2011 as investors tied bets on risky assets to the euro’s moves. That trend ebbed as equities rallied near the end of the year, but it is likely to flare up again. So far the US economy has stayed on course for moderate growth. Economists expect it to expand by about 2.1 percent next year. But it is unclear how a slowdown in the rest of the world will affect the economy stateside. The key may be China rather than Europe. “China is the 800-pound gorilla in the
room and is probably the most important country to watch in terms of their contribution to global growth,” said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut. Chinese business confidence is weakening. A survey showed export orders fell for the first time in nearly three years. The drop in materials shares in 2011’s second half reflects worry about declining activity overseas. The S&P Materials Index lost nearly 14 percent in the last six months. GRIDLOCK SHOCK One of the pivotal events of 2011 was the downgrade of the United States’ perfect triple-A credit rating. Standard & Poor’s cited congressional bickering as the reason for the downgrade. August’s stalemate in Washington over raising the debt ceiling sparked a selloff that accelerated after the downgrade. Investors expect the gridlock in Congress to get worse as the US presidential election approaches in November. The election is likely to be close, which will not make legislative efforts to tackle high debt levels and weak demand any easier. Rancor was in view again in December as Congress struggled to pass a two-month extension of US payroll-tax cuts. “There will be less certainty about taxation and regulation so that will inhibit business formation and business growth,” said Brian Battle, a trader at Performance Trust Capital Partners in Chicago. Goldman Sachs sees global growth highly susceptible in 2012 to even minor shocks - and those shocks may be political. “Slowing growth (and in places outright contraction), public-sector cuts, and a renegotiation of the social compact between state and society in different parts of the world is an environment ripe for political turmoil,” Goldman said in a note to clients. — Reuters
US stocks outperformed major markets in 2011 S&P 500 finishes one of hard years on record
The winner Abdullatif Salem Ali Al-Wahaib
Gulf Bank announcers winners of 15th Al-Danah weekly draw for 2011 KUWAIT: Gulf Bank held its fiftieth Al Danah weekly draw on December 25, 2011, announcing a total number of ten Al-Danah weekly prize draw winners, each awarded with prizes of KD 1,000. The 50th Al Danah weekly winners are: Abdullatif Salem Ali Al-Wahaib, Manju Nath Qadfah Nandafar, Nashmi Muhana Al-Fhadli, Abdulla Menshed Al-Shamari, Nadia Bakhan Mohammed Karam, Amal Kamal Fleet Abdel Mawjoud, Sara Hussain Al-Hawaj, Mohammad Ahmad Mohammad AlAzemi, Sami Abdulla Fengan AlYaqoub and Faisal Waleed Abdul-Aziz Al-Manie. Gulf Bank encourages everyone in Kuwait to open an Al-Danah account and/or increase their deposits to maximize their chances of becoming a winner in the upcoming weekly (KD1,000 each for 10 winners). Gulf Bank’s Al Danah allows customers to win cash
prizes and encourages them to save money. Chances increase the more money is deposited and the longer it is kept in the account. Al-Danah also offers a number of unique services including the AlDanah Deposit Only ATM card which helps account holders deposit their money at their convenience; as well as the Al-Danah calculator to help customers calculate their chances of becoming an Al-Danah winner. To be part of the Al-Danah draws, customers can visit one of Gulf Bank’s 55 branches, transfer on line, or call the Customer Contact Center on 1805805 for assistance and guidance. Customers can also log on to www.egulfbank.com, Gulf Bank’s bilingual website, to find all the information regarding Al Danah or any of the Bank’s products and services or log on www.e-gulfbank.com/aldanahwinners, to find out more about Al Danah and who the winners are.
WASHINGTON: US stocks outperformed major markets across the globe in 2011 as the S&P 500 made it past the finish line Friday virtually unchanged after one of the most volatile years on record. With investors abandoning their longtime favorites, the emerging markets, and with Europe’s bourses mired by the euro-zone crisis, Wall Street came in as a investor sanctuary, even if net gains were nothing to shout about. Despite a late-session drop on Friday, the Dow Jones Industrial Average-the top 30 blue chipsmanaged to come in with a 5.6 percent gain for the year, ending at 12,217.56. The broad-based S&P 500 ended where it started, off by a small fraction to 1,257.60. And even the tech-heavy Nasdaq Composite held together enough to register just a 2.2 percent loss. Compared to the Nikkei’s 17 percent fall, a 19 percent drop in Hong Kong, 25 percent in Bombay and 18 percent in Brazil, and the 18 percent loss for the blue chips of the Euro Stoxx 50, the US was the best destination for investors in 2011. But US markets only barely made up their steep losses in the fourth quarter, as economic growth appeared to regain its footing while economies elsewhere slowed and Europe sank further into crisis. “Although investors may not have scored the absolute return that they wanted, the stock market still exhibited relative strength while most of the world’s other major equity averages suffered double-digit percentage declines in 2011,” said Briefing.com in a review of the year. The markets were helped by a solid recovery in US corporate earnings, including the banks and auto industry. Profits were up on average 13 percent, and many companies built up cash piles or bought back shares as they girded themselves for more challenges in the new year. Markets were also helped by the Federal Reserve, which kept interest rates near zero for the third straight year, and by aversion to other currencies, especially the euro. Even so, because of investor skittishness, said Briefing, “stocks remain extremely cheap on a relative basis.” The year was marked by severe volatil-
NEW YORK: Traders James Lodewick (left) and James Riley (center) work on the floor of the New York Stock Exchange. 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 on Friday. Markets will be closed tomorrow in observance of New Year’s Day. — AP ity, as the world was rocked by extreme eventsthe Arab Spring uprisings, Japan’s massive earthquake-tsunami disaster, repeated US political showdowns over the deficit that led to a historic S&P downgrade of its credit rating, and Europe’s crisis, which sparked fears of a possible breakup of the euro-zone. Through that, volatility on the S&P 500 was higher than all but four of the last 31 years: only the crash years of 1987, 2002, 2008 and 2009 were rockier. The stars of the Dow were led by fast-food giant McDonald’s, up 31 percent for the year, drug maker Pfizer (24 percent) and Kraft Foods (19 percent). The dogs were Alcoa, off 44 percent, Hewlett-Packard (39 percent) and
JPMorgan Chase (22 percent). Nasdaq’s big counters were mixed as well. Apple, which lost visionary leader Steve Jobs during the year to cancer, closed 25.1 percent higher. Google added 7.9 percent, and Intel gained 15.4 percent. Amazon lost 5.3 percent, Microsoft slid 6.8 percent, and Oracle sank 18.0 percent, most of that lost in December when it missed an earnings forecast. Analysts are marginally optimistic about the coming year, with much depending on whether the US economy can sustain and add to its feeble pace of expansion. “The market continues to be held in check by ongoing risk, most of it associated with other parts of the world, in this case Europe,” said Hugh Johnson of Hugh Johnson Advisors.—AFP
Stock market highs and lows in 2011 NEW YORK: A look at the best and worst performers in the Dow Jones industrial average, which tracks 30 key US companies; the biggest industry gainers and decliners in the broader S&P 500 index, which ended nearly flat for the year; and some companies that rattled investors in 2011. BEST OF THE DOW McDonald’s Corp, up 31 percent. The burger chain has remodeled stores and added healthier items to menus in the US while expanding abroad. IBM Corp, up 25 percent. The 100-year-old tech company sells high-margin software and technology services that can help corporations and governments cut costs. Pfizer Inc., up 24 percent. The world’s largest drugmaker has been advancing new drugs to offset generic competition for Lipitor, the biggest-selling drug in history. WORST OF THE DOW Bank of America Corp, down 58 percent. One of the country’s largest financial institutions is still dealing with fallout from the housing meltdown. Alcoa Inc, down 44 percent. The aluminum producer is a barometer for the health of the global economy. Investors worried about a slowdown in China and a prolonged debt crisis in Europe. Hewlett-Packard Co, down 39 percent. The PC and printer maker struggled with executive dysfunction and indecisiveness on whether to sell its low-margin PC business.
Faisal Waleed Abdul-Aziz Al-Manie
OTHER BIG MOVERS First Solar Inc, down 74 percent and worst in the S&P 500. Chinese companies are producing cheaper solar products while
governments cut subsidies for alternative energy. Cabot Oil & Gas, up 101 percent and best in the S&P 500. The oil and gas company ramped up production, and lucrative natural gas reserves in the energy-rich Marcellus Shale bode well for its future. Netflix Inc, down 61 percent. The video company alienated subscribers with changes to prices and an ill-fated attempt to separate its streaming and DVD-by-mail businesses. Apple Inc, up 26 percent. The company’s newest iPads and iPhones sold briskly while investors looked to new CEO Tim Cook to fill the shoes of Steve Jobs, who died in October. — AP