Why 2012 is different

Investors are optimistic so far this year despite broad concerns about the economy and fourth-quarter earnings results.

By Jim J. Jubak Jan 9, 2012 4:25PM
Image: Bull (© Photographers Choice RF/SuperStock)Have we been here before?

It feels like those days in 2011 when the U.S. stock markets were the best performers in the world. But this isn't just a replay of 2011. There are significant differences.

In 2011, U.S. stock markets beat all the other major markets in the world.

The overall absolute performance for 2011 wasn’t all that great: The Standard & Poor’s 500 Index ($INX) climbed just 1.2%. But the relative outperformance was stunning: For 2011, emerging markets, as tracked by the iShares MSCI Emerging Markets Index (EEM), were down 18.8% and the world’s other developed markets of Europe and Japan, as tracked by the iShares MSCI EAFE Index (EFA) were down 12.2%.

This January looks remarkably similar so far. Europe has continued to sink -- iShares EAFE is down 0.77% for 2011 through Jan. 6. Emerging markets are doing better with the iShares EEM up 0.75%. But the S&P 500 is up 1.76%.

The driver for the outperformance of U.S. stocks in 2011 was been the ability of the U.S. economy to exceed expectations. While projections for growth in the eurozone and in emerging economies have been falling, U.S. economic data, while not in absolute terms all that great, have exceeded expectations. Job growth of 200,000 in December may not be enough to cut unemployment significantly (especially when you factor in the 40,000 or so seasonal jobs delivering packages at FedEx and UPS that were added in December but will get subtracted in January), but it did beat consensus expectations of 150,000 net jobs for the month and the November figure of 120,000 jobs.

Economists have expressed worries that while U.S. economic growth will come in at 3.5% or so in the fourth quarter of 2011, it will drop back to 2% in the first quarter of 2012.

Investors, however, have been more than willing to overlook those reservations to ride the hot momentum hand in the first week of 2012. For example, homebuilding stocks, one of the most battered groups in 2011, are among the best performers of 2012 so far. And the more battered a stock was in 2011, the bigger the gain in 2012. DR Horton (DHI), for example, was up 6.96% in 2011 and it’s up another 2.93% in 2012 through January 6. But PulteGroup (PHM), which was down 16.09% in 2011, is up 12.52% in the first days of 2012.

And it’s this speculative optimism that makes the first days of 2012 different from the relative outperformance of 2011. Wall Street analysts have turned decidedly negative on earnings as we begin earnings season, with fourth-quarter forecasts now calling for just 6.9% year-to-year earnings growth and an even skimpier 3% forecast for the first quarter of 2012.

For the rally that has begun 2012 to have some legs, we’ll need to see some other sectors to add their bit to the housing-generated momentum. Technology is the best chance. Monday, momentum favorites F5 Networks (FFIV) and Broadcom (BRCM) are up 4.3% and 2.8%, respectively, as of 2:15 p.m. ET. (F5 Networks is a member of my Jubak’s Picks 12-18 month portfolio.)

If other momentum plays join in, this rally might run for a while, but rallies built on momentum make me nervous. They tend to end dramatically -- if the momentum doesn’t get support from economic fundamentals.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The
fund did own shares in F5 Networks as of the end of September.
 For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 
18Comments
Jan 9, 2012 6:22PM
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Another boring year, just sitting around for the ball to drop on Europe then buy in when things are cheap.

Jan 9, 2012 9:43PM
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These so called "professionals" (incl Jubak) change their opinions as often as I change my shorts.  (Which is every day.)  Why is it, when the wind blows from a different direction, they change their tunes?  I used to read Jubak's columns quite readily but I am very disappointed with him now....

 

Jan 9, 2012 11:41PM
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short the market as a whole...buy oil as a long and short term play.  buy biotechs with play money.  stock up on food, plant a big garden, and have no faith in the deciders in dc.  i am very afraid that america aint' seen the times that are a coming since the civil war.  so find a way to keep mobile and aware of greeks bearing gifts.
Jan 9, 2012 6:13PM
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Seems like old times.  Nothing has changed.Smile
Jan 10, 2012 6:34AM
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Not one person can say what's going to happen. "Smoke and Mirrors" Is all I can see. Iran, North Korea, China, and then there is the Euro Zone MESS.  All of the things mentioned are what's making the perfect storm.  If you have most of your money in the market. I wish you the best of luck. You all know the saying " Chance favors the prepared mind"  Even in the election year I will not be playing the market. Just remeber this one thing,Stay out of the FEMA camps.
Jan 9, 2012 10:53PM
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to Nevada Gold

  I disagree, no, the average person is not educated enough to make money in this environment,  If he was then we would not be in this mess.  Millions of average joes went and bought houses they knew they couldn't afford, didn't brother to read the paper work  evolved, and are now crying poor me .  Yes, I know that blatantly greedy loan personnel took advantage of this situation and destroyed the banks and caused a huge domino effect that damn near wreaked the economy and because the ptb government bailed the banks and made more than a few people who should be in jail are now very, very rich.  Stupid move in more than one way!  But we, the people, elected those fools in Washington and have left them there to  take advantage of their position and become part of the 1%. 

  The American businesses who have survived the domino take down are still there, more than a few in deep dodo,  but still there ready and willing to power up, hire on and produce their products for the world .  This is the strength of America.  Yes, the government has thrown money away like there was no tomorrow,  our money, our taxes.  We, as a country , are in a dept that is stupid,  really mind boggling.  As my father told me," just because you can say a number doesn't mean you know what it is".  But just money isn't this country's power.  Our real power is in our people , minds who can think outside the box, who look beyond 'no, it can't be done", and "we always done it this way"  Our huge resource is the American worker who lost his job but is still looking, going back to school and retraining, who hasn't quit even with reduced hour and pay cuts.   We need to put them back to work. at profitable companies, who will in turn will pay them so they will go out and buy the products other companies make.

  And now let's see how this is going to happen.  We, you and me and all the other people who invest their hard earned dollars search and research the companies that we think are solid, responsible, businesses that produce the basic products that people can still buy with their few dollars and invest in them.  These companies grow, they then buy raw materials and products other companies produce, ad infininidum.  The domino effect in reverse! 

  Admittedly, this is not going to happen overnight, it is not going to happen in a year or two, but it can happen.  I'm not even going to crawl out on a limb and say it will happen, but I and I hope others like me will try and make it happen.  I will continue to search and research for companies I think are solid investments, who show they can and and will prosper and in turn  push other companies along the path to recovery.  I will invest the little monies I have and believe that I have made correct choices. 

  As for the rest of you who want somebody else to tell you what to do, get off you shovels, put out your camels, and help make this the promised land. 

 

 

the soap box is yours...

 

Jan 9, 2012 9:22PM
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At the end of the year most of the financial journalist's were predicting a bad first half for 2012. Now they seem to have reversed themselves.  Jubak said the first half would be rocky at best. Now he seems to be saying the opposite.  Moral to the story. These so called experts don't know anymore then the average reader does.  It's all just a roll of the dice.  Just remember, the market hasn't made a dime in 11 years.  Plus what role will austerity play in future earnings. Also, what would happen if we balanced the budget tomorrow.  Depression is the answer. The average person is educated enough to make overall profits in the stock market.  Too bad bonds pay so poorly.
Jan 9, 2012 8:45PM
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Nobody's gona' get rich quick but if you work at it you can make money in this mess, it will just be hard work and patience.
Jan 10, 2012 9:54AM
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these guys are behind the curve always...there is no way they can predict market

direction...and there is no way they can pick stocks...they are in business to sell

advice..and their advice is usually wrong...you are better off selecting a macro trend

and then putting your money in a plain index...at least that way, if you are right on the

trend you will profit....whether its cramer or myridari or jubak they all have no clue

of what the market will do ...and to add to that..any invidividual investor who thinks

he can out trade a computer program which trades hundreds of thousands of shares

in nano seconds both ways is kidding himself..take the metal etf's for example by

the time the market opens they have moved in pre marketing trading and you will always

be too late to ride the wave..same with many stocks there are always surprises to the

upside and the downside..and by the time you get a stock recommendation its way too late

(see netflex)

Jan 9, 2012 9:19PM
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In other words, "Tune in next week so I can tell you the opposite and keep getting unwarranted hits."

I have confidence in the market long-term. Why I even read this crap I don't know. 
Jan 10, 2012 12:23AM
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Open-mouthed The investors has no choice but to invest their money at this point in time. There's just no money in bank savings and too much cash is not practical. The rich just have too much money than they know what to do with it.Nerd
Jan 10, 2012 8:28AM
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One Rule:   Buy low sell High   Panic in the market helps you do this, The Euro zone helps, insane dictators help, Pundits that have definite predictions help you do this, political elections help you do this, Giant funds that buy and sell huge blocks of stock help you do this, corporate earnings help you do this, sector rotation helps you do this. congress even helps   have a plan stick to it and when it isn't working bail out and save your cash.   The rest of the time make some money, avoid taxes, and be happy
Jan 9, 2012 9:07PM
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Jubak, you said the same thing last year and the year before.....why we continue to pay people like you any attention at all, is beyond me.  Why don't you clowns just let the market take care of itself??  Good grief....how much is enough?
Jan 9, 2012 8:21PM
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You also have to suspect a shift of global investing dollars from the rest of the world to the good old USA.  We are probably perceived as one of the last bastions of safe investing.

 

                                                                                Martini glass

Jan 9, 2012 11:22PM
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We are probably perceived as one of the last bastions of safe investing.
Ice Cold Sangria .. last month China made the offer to re-invest in America's infrastructure with part of the trade surplus money, they have accumulated.  Smart move by China, in my opinion.  I wonder if this is one of the items that will be on the agenda of Treasure Secretary Geithner, on his visit to China this week?
Jan 10, 2012 11:50AM
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So how do you get one of those computer programs that can't be beat?
Jan 10, 2012 2:50PM
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to red billy...

 It's called and brain and education.  A computer is a tool, a machine that runs programs that were written by people.  Yes smart people who have  tried to look at hundreds of various situations and written a set of rules for the computer to follow in these circumstances. The problem with computers is that when they run into situations they have not been programmed for they don't know what to do, they make errors or sometimes just quit and ask for help.  Who do they ask, people with brains that think!  That 7# object at the top of your neck is still the best computer ever made.  It does things that no computer has ever done, it can imagine, it can suppose, it's not bounded by a fixed set of rules, it can improvise, adapt, foresee and understand the moods of people and circumstances. 

  Now I use a computer as does every one I know in today's world.  They can crunch numbers much faster than I can.  But I put in the numbers, I tell it what to do with them and where to put them in other programs for further study.   But what is important is that I must say this looks good or bad, I decide that.  Yes a program could tell me that this number is with the parameters set but I don't believe that any one short of maybe Bill G. in Washington could afford to build the system or have the programmers constantly  working with the daily news and world events to say "No, that number isn't so good today cause Iran is saber rattling again and there's another oil fire in the gulf."   My poor little brain knows all that already because I watch for news and events that could affect this and tells me this is not good enough for now.   

  How do I know what affects my decisions, I went to school, got an education and  spent years in the school of life. Sometimes I got kicked in the gut, sometimes I ate prime rib over my decisions but I tried to learn from them what works and,  what doesn't , what will get me in the front corner office for a pat on the back and what is liable to come back and bit me.  What I have learned is to careful , complete as I can and precise.   Take responsibility for my actions and none for the actions of others.  Give credit where credit is due and don't expect anything extra for just doing your job.  You want extra, do extra.

  You tell me where the computer is that can do that and I will personally kiss your **** in the middle of time square at noon, after we arrange to buy the damn thing. 

Jan 10, 2012 11:58AM
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there is good reason why most of us not buying it. The economist were fooled by the housing bubble and it effects yet the same economist say investors can not be fooled by lot interest rates. A lot investors will be fooled if they only look at supply and demand and did not  look at the saving rate. plus the bubble industry effect other industries distorting the supply and demand curve. What I call fan out. inflated dollars only go to bubble on purpose because bankster love the business cycle. it pump and dump at its most complex.  they pump the market and sell before the bubble burst.   once they burst they buy. Once they economy recovers the price will be higher and they will sell. They do not care a lot about destruction they cause because they have fed to bail them out.   Also to a bankster competition is sin because there are honest bankers who cut into the banksters profits.
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