5 big questions for 2012

A volatile 2011 may lead to a repeat performance in 2012. Investors may see some of that volatility in the week ahead. Important reports are due on jobs, manufacturing and auto sales.

By Charley Blaine Dec 30, 2011 9:39PM
Charley BlaineUpdated: 11:54 p.m., Jan. 2

Sure, 2011 ended fairly well, with a strong rally in October and an OK rally in December. Sure, McDonald's ( MCD) gained 31%. Apple (AAPL) rose 25%. Humana (HUM) jumped 60%.

But let's face it: 2011 was a challenge. It was frustrating, even maddening.

Netflix (NFLX) hit $298.73 on July 13 but then dropped more than 75% by the end of the year. Bank of America (BAT) fell 59%. American Airlines parent AMR (AMR) sought bankruptcy protection and ended the year delisted from the New York Stock Exchange. Zynga (ZNGA) went public at $10 on Dec. 15 and hasn't closed that high since. Bank stocks, especially big-bank stocks, were a misery.

It's possible that 2012 could offer more of the same. Or that the market could tumble. Or, as Tom McClellan of the McClellan Market Report suggested, that the market could go "violently sideways," at least for the first half of the year.

In other words, a good year -- with the Standard & Poor's 500 Index ($INX) rising, say, 10% to 11% -- should be greeted next December with great celebration. Because the odds favor a challenging year at the least. But, if gains in Asia are any indication, U.S. markets could well open higher. Crude oil was trading above $100 a barrel.

Article continues below.

The Dow Jones industrials ($INDU) ended 2011 up 5.5% at 12,218. The S&P 500 was exactly flat at 1,258, and the Nasdaq Composite Index ($COMPX) finished down 1.5% at 2,605.

Some of the challenges will become apparent in the week ahead when financial markets reopen after the New Year's weekend and Iowa holds its presidential caucuses.

There are important economic reports, including the always-important monthly jobs report, due Friday. The market week begins Tuesday with December's report on manufacturing from the Institute for Supply Management and reports on factory orders and December auto sales on Wednesday.

On Thursday, many of the largest retailers will report December sales, the first time anyone will see if the holiday shopping season was a success or a bust. Weak reports will cast a pall on the markets. Watch Target (TGT), Costco Wholesale (COST), Nordstrom (JWN) and Macy's (M).

All that will help set up the big questions for investors in 2012. And may explain Tom McClellan's "violently sideways" market with big, shock moves that ultimately lead to a market that's little changed.

It's important to note, however, that he sees the violently sideways market lasting maybe into June and setting up a big second-half rally. He is an optimist as 2012 begins, and he's a rarity.

Can a U.S. recovery really take hold?
Boy, that would be great for stocks. And the past few months have produced better data. Jobless claims have been falling; payroll employment has been moving higher. Auto sales have been rising. There have been teeny-tiny signs that the housing market may be coming to life, although prices remain pressured or are just starting to stabilize. That one reason why Home Depot (HD) shares jumped nearly 28% in the fourth quarter. A lot of big money is making a bet that the housing bottom is nearly at hand.

Will Europe prove too big a burden? Readers are tired of Europe. Everyone is tired of Europe. The fear, however, is that what purports to be a solution to Europe's debt crisis leads to something very bad happening. The most likely bad thing happening is a country leaving the eurozone and setting off a banking crisis. That's why the shares of so-called money-center banks such as JPMorgan Chase (JPM), Goldman Sachs (GS) and Morgan Stanley (MS) were crushed in 2011.

There is almost no way to avoid pain from Europe, with recession, already raging in Greece, hitting Italy, France, Spain and, probably, the United Kingdom. The Germans won't be able to avoid the pain. Business knows this. Nearly a fifth of the companies in the S&P 500 have already warned that fourth-quarter earnings will be lower than expected. Slowing revenue from Europe is believed to be a factor in many of the warnings. It certainly was the case with Oracle (ORCL), when it warned on Dec. 20. Only 27 companies in the index have boosted their forecasts.

Will China be able to slow its economy without crashing it? The Chinese are trying to steer around a gigantic real-estate bubble, something Americans know all too well. One signal that they may be succeeding: The price of copper rose 9% in the fourth quarter. That may reflect some optimism about the U.S. housing market as well. 

Can the world survive austerity? Europe is going into a major round of austerity, the price of German assistance in not letting the euro collapse. Republicans and Democrats have been fighting over budget cuts nonstop since the end of 2009, and that will be a big theme in 2012's elections. State and local governments have been cutting back sharply in recent years. Public-sector job losses have emerged as a drag on domestic economy. The worry about austerity is it will choke off consumer confidence well beyond the public sector and cause the economic recovery to stall out. Moreover, the worry is that the lack of economic prospects causes major social unrest. Looking for the canary in coal mine? Watch Greece and Italy.

Will the U.S. elections scare everyone too much? The stakes for all concerned are quite high, and it is quite possible that the intensity of the campaign rhetoric, the apocalyptic warnings that nonstop advertising will unleash will scare so many people that they stop spending. The budget battle last summer did dampen consumer spending.

What if commodities shoot up again? A big run-up in commodities, whether oil, gasoline, food or cotton, won't help anyone. In 2011, crude oil moved up nearly to $114 a barrel by the end of April and fell back as consumers stopped buying and held back on making new auto purchases. The fact is, most confident predictions of soaring oil and gasoline prices usually don't take into account that drivers will adjust. Crude oil is up 31% since early October. The next few months may test consumers' willingness to change their behavior.

There are some things one can't predict: earthquakes, flooding, bad weather, wars. All played significant roles in the volatility that wracked markets in 2011. The Iranian threat to blockade the Strait of Hormuz -- made several times in the last few weeks -- would probably send oil prices sharply higher.

The week ahead: All about the economy
You don't have to wonder much about earnings except on Thursday, when the key reports are from Family Dollar Stores (FDO) and seed producer Monsanto (MON). The former will offer a view of U.S. consumers. The latter will tell us a bit about what the global economy is willing to pay for a basic food component -- animal feed.

Then, you'll be left to ponder what fourth-quarter earnings will look like. The basic view is that earnings may disappoint.


Wall Street analysts are expecting an 8.5% gain in fourth-quarter profits. That's down from a consensus for 15% growth in October. The fourth-quarter earnings season will start after the close Jan. 9, when aluminum giant Alcoa (AA) reports results.

Markets for the week



12/30/2011

12/23/2011

% chg.

YTD chg.
Dow Industrials

12,217.56

12,294.00

-0.62%

5.53%
S&P 500

1,257.60

1,265.33

-0.61%

0.00%
Nasdaq 

2,605.15

2,618.64

-0.52%

-1.80%
Russell 2000

740.92

747.98

-0.94%

-5.45%
Crude oil 

$98.83

$99.68

-0.85%

8.15%
(per barrel)











U.S. Dollar Index 

80.52

80.24

0.36%

1.56%
10-yr. Treasury

1.87%

2.03%

-7.83%

-43.39%
Gold

$1,566.80

1,606.00

-2.44%

10.23%

Jobs report will climax a big week
The big report will come Friday with the December report on unemployment and nonfarm payrolls. The consensus estimates are for the unemployment rate to rise to 8.7% from 8.6% in November.

Nonfarm payrolls are expected to rise by about 150,000, after a bump up of 120,000 in November. That reflects strong reports on manufacturing during December. But don't expect any changes in wages.

Here are the big reports for the rest of the week:

Institute for Supply Management Manufacturing Index for December, due Tuesday from the Institute for Supply Management. Regional surveys suggest gains for manufacturing in the month. Indeed, the Chicago PMI report, released Thursday, suggested supply problems resulting from the Japanese earthquake are resolved.

Construction spending for December, due Tuesday from the Commerce Department. Look for no gain. Declines in public-sector spending will likely be offset by gains in commercial and residential building.

Release of minutesfrom Dec. 3 meeting of the Federal Reserve's Federal Open Market Committee, due Tuesday at 2 p.m. ET. The minutes should offer more color on the Fed's decision not to start another quantitative-easing program. With quantitative easing, the Fed buys Treasury securities to ensure there's enough cash in the economy. Many traders have been hoping for another round of easing; many economists loathe the idea, fearing the moves merely set the economy up for a big round of inflation.

Auto sales for December, due Wednesday from automakers. IHS Global Insight sees sales at a 13.8 million annualized rate, up from a 13.6 million-unit rate in November.

ISM nonmanufacturing index for December, due Thursday. Expect a small gain and a gain in its critical employment category.

Jobless claims for the week of Dec. 31. These are expected to remain below 400,000 for an eighth straight week and raise hopes that job creation is accelerating.
58Comments
Jan 2, 2012 3:52PM
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Work on paying off your debt. It will free you from slavery. Slavery was abolished in 1863, but consumerism has been led by the nose to believe debt is the best way. Get free of all that mess and you can begin to establish real positive capital. Life really is easier to manage being debt free. There are those who will try to persuade you debt is job creating, but that is only short term and will lead to another debt driven recession.
Dec 30, 2011 11:49PM
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JOBS, JOBS, JOBS ... If someone in Congress doesn't understand the simple definition of the word, look for a robust change in the revolving seats of Capitol Hill.
Jan 2, 2012 8:31AM
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How about we all try this ..... Shop locally when possible and don't buy everything at Walmart, other big box stores and the internet.  Cheap isn't everything.   We'll all be happy when this produces jobs and a better economy.  I would rather pay a little more to support local, smaller, businesses and help create jobs.  The increase in our home values and investments will far exceed the cost of this mindset !!!!
Jan 2, 2012 4:27PM
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NEW YORK (CNNMoney) -- The number of Americans filing for first-time unemployment benefits took an upswing just before Christmas.

About 381,000 people filed initial jobless claims in the week ended Dec. 24, the Labor Department said Thursday. That was more than economists had expected and marked an increase of 15,000 from the prior week, when claims had fallen to their lowest level since April 2008.

 

I think we will hear the same "Hype & Hope" from those reporting agencies who want the investors to believe things are better than they really are.  I feel 2012 will continue to see a very sluggish job market for decent paying, full-time jobs with benefits.  So contrary to what the Labor Department reports etc. just look around the town, city or state you live in and then you decide if the job market is improving or not. 

Jan 2, 2012 1:46PM
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2012 be not be better than '11 UNTIL Nov of 2012 when Obama is rudely shown the door.

 

The DAY after the election, the economy will in improve just based on the fact that this bum will be gone.

It's called consumer confidence and this empty suit offers confidence only to his base of beggars.

When the other 50% of the population (his non "base" ) you know,  the working class, sees he is gone it will change things for the better.

 

Get rid of this dope for a change, we can REALLY believe in

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Thanks and Happy New Year to all our readers.
Jan 2, 2012 2:17PM
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Of course this year will be no better than last, if anything it will be much worse. But just like last year (and the year before) you are told to believe that things are getting better all the time. Mainstream media and the government will invent new catchy phrases to replace the tired and old "green shoots" and "recovery" . Maybe we can start a new parlor game were people can sit around and guess how many more years the depression will go on.

Jan 2, 2012 11:35AM
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Happy and prosperous New Year everyone. I wish you all the best this year. Now is the time where you get a load of predictions about where the pundits think the Dow and S&P will be in a year. They are wrong more often than not. The investment advisor that has your best interests at heart looks back at you from the mirror each day.
Jan 2, 2012 9:18AM
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Maybe I'm not so patriotic since I started investing in Chinese PTR & SNP with some Norwegian Oil stocks beginning around 2000 .I also went with Water stocks here in the USA basically power, energy & water stocks plus the old fashioned stocks like XOM & then I bought Ford when nobody thought they would survive and in the end Ford did not need that fat government bailout. However as China & Russia struggle to dominate the global energy markets by any means necessary. When HAL took a nosedive in Jan 2002 I bought knowing that KBR & HAL would both be making money off of the war. I invested on the old theory that since the dawn of time man has killed for fire and water access. My biggest fear is that The Suez Canal will face closure as Egypt still remains in a state of civil unrest. And before you say war profiteer I say "you would have done the same had you paid attention", I never went near any tech stocks, probably too old to trust them. The sad truth of the world we live in is that Oil, Guns & Water will always be reliable investments because it's human nature. With AIG whose humble beginnings began in Asia I lost more than my shirt because I had inherited the shares, paid Uncle Sam's tax on it added more over time so I got screwed twice.I think it is a personal decision whether to stay in for the long haul or run when bad things happen like the BP Oil Spill in the Gulf  where I had bought it in '09 when it was cheap and held onto BP through the disaster and am still ahead.The truth be told life & the Market are both a crapshoot.
Jan 1, 2012 2:49PM
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would you expect anything else

 

 

vidoe:    

 

 

happy last year as this year brings the same old lies from NBC! Santorum call's nobama2012 "Divider-in-Chief"!

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Marketrigger says: "2011 was the worst investment year for stocks since 1999. 2008 was a rally year compared to this year!!!" I wonder if he could elaborate on the point.

There wasn't a major index that didn't fall at least 30% in 2008 -- and continued to fall into March. There wasn't any similar year-over-year result in 2011. Except, of course, for financial stocks. But they were the exception in 2011, not the rule.

As I said at the beginning, 2011 was a maddening market. But the fourth quarter was a nice recovery. Especially compared with the fourth quarter of 2007, which offered a clear signal that 2008 would be a miserable year.

After the Dow and S&P 500 peaked on Oct. 9, 2007, the Dow fell 6.4% through the end of the year; the S&P 500 fell 6.1%. The Nasdaq dropped 7.2% between its Oct. 31, 2007, high and the end of the year.

Anyway, I'd be interested.
Jan 1, 2012 6:56AM
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The Stock Market will never change until we make it happen by establishing new rules and regulations.

 

For starters:  Big moves cannot be accomplished without costly consequences that would make it a profit loss.  This would take the wind out of the manipulating sails and help investments to grow.

 

HAPPY NEW YEAR!

Jan 2, 2012 8:39PM
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it's very simple  " save"   hang on to your money . the stock market is too volatile  and  untrustworthy .  so many scumbags  with out  any morals  or scruples work in  finance.   be an educated investor   learn the market  .  don't  take  any stock tips  from some  stock broker "trainee"   from  new york .   learn and educate  yourself .
Jan 2, 2012 7:08PM
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Happy New Year. I'll hang out on the sidelines for a while, and see what the first 30 days are like.  Would like to go into the market again ,but only at 9,000. Will wait and see.
Jan 1, 2012 5:59PM
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Yup.......Thanks Charley and All the MSN Staff and other writers..

 

Plus news from the Street Staff.....All of you, are appreciated.   Thumbs upOpen-mouthed

 

Have a Nice New Year and Best Wishes to All........Nerd

Dec 31, 2011 2:16PM
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Bonds had their run. Beware! Stocks also had their run last 3 years. Gold is done. Oil is done. Price of oil, gold, silver, stocks, bonds, homes cannot be sustained when the money supply deflates. Google for "DEFLATIONARY CRASH" to understand why US dollar becomes more valuable during financial crisis. Keep your cash safe. A lot of people need to pay debt and they don't have the money. If you have it, it will have value.

Dec 31, 2011 5:41PM
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Title of article would be compared to "It might snow this winter" With the global markets in a constant state of chaos. What else would one think?
Dec 31, 2011 12:36PM
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Too many uncertainties in the world, including either inflation or a depression. Best to stay away from the stock market until things are clearer. That could mean sitting our all of 2012.
Jan 2, 2012 7:35PM
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HotActive, great post on Keynesian Economics, I see such a lack of cognizance from most writers. If the feds fail to play a active roll in maintaining a Equilibrium in money supply, savings, debt, un-employment etc. Failure to intervene leads to Monster Economic Bubbles that lead to bigger recessions and depression in our economic cycles. Had the feds tightened the money supply back in 2003, we could have slowed the housing bubble and prevented the crash of 2008. Recessions are a normal part of our economic cycle, unfortunately some politicians have to much pride to do the right thing under their watches and the result is millions losing their Homes, Savings and dignity. Keynes simply taught if you keep equilibrium you can maximize an economies growth potential and minimize down turns.Dog face
Jan 1, 2012 12:19PM
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Yeah...These guys write the articles for our enjoyment and insight.......

 

Sometimes we have peeks and projections of what may be coming....?

 

Other times it may be reflection or past performance....Of something we might have missed ?

Whether a reader chooses to understand or make use of the information, may be their loss?

 

Of course there are always the idiots, that don't sound like investors or want to blame the political system for their own failures....Instead of looking in the mirror.......Thanks CB

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