North America

January 2012

The S&P 500 is flat over 2011.
The Federal Reserve leaves its interest-rate and quantitative-easing policies on hold.
US third-quarter GDP revised down to 1.8%.

Wall Street managed a small gain in December, with the S&P 500 rising 0.9% in dollar terms. No progress was made over 2011 as a whole, however – the index finished the year back where it started.

December’s top-performing sectors were telecoms (+3.7%), utilities (+3.0%) and healthcare (+2.8%). Two of these – utilities and healthcare – were also the year’s top performers. In contrast, materials (-2.4%), IT (-0.9%) and energy (-1.1%) were in the doldrums. Over the year as a whole, however, financials (-18.4%) proved to be the worst-performing sector by some margin.

Early December brought some downbeat corporate news from Citigroup. The bank’s chief executive announced that it plans to cut 4,500 jobs. Elsewhere, a revenue warning from Intel, the world’s largest chipmaker, added to the pall currently hanging over parts of the technology sector. Flooding in Thailand has caused a shortage of hard-disk drives, leading to Intel’s customers to cut production of PCs. The company cut its fourth-quarter revenue forecast by $1 billion. The shortage also prompted Texas Instruments and Altera, both sector peers of Intel, to cut their guidance figures.

The Federal Reserve’s announcement that it plans to leave its interest-rate and quantitative-easing policies unchanged left investors feeling underwhelmed. Industrial production figures for November were also lacklustre – output declined by 0.2%, the first fall in seven months. Meanwhile, an analyst from ratings agency Standard & Poor’s took the following gloomy view of the prospects for the global economy: “While (US) domestic risks have diminished somewhat, the bigger question is how much the world economy will slow down.”

Some cheer was provided by better-than-expected housing data. Housing starts grew by 9.3% on the month during November, while housing permits also beat expectations with a 5.7% monthly increase. The US economy as a whole, however, grew at a slower pace than previously expected in the third quarter. According to a report from the Commerce Department, GDP grew at an annualised rate of 1.8% in the three-month period – down from a previous estimate of 2.0%.

Finally, members of Congress agreed to extend payroll tax cuts and unemployment benefits, ending weeks of partisan standoff. President Obama had previously derided the stalemate as “ridiculous”.

The information contained in this document has been derived from sources which we consider to be reasonable and appropriate. It may also include our views and expectations, which cannot be taken as fact. Investment markets can change rapidly and the views expressed should not be taken as statements of fact, nor relied upon when making investment decisions.

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