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”.
