December 2011
Markets in Review

U.S. Equity markets ended 2011 on a positive note, but the year was difficult for those markets.  The S&P 500 Index increased +1.0% in December, which resulted in a +2.1% increase for the year.  The technology-laden NASDAQ Index fell –0.6% in December and –1.8% for the year.   Large capitalization stocks outperformed small and medium capitalization issues in December and the year, but small and medium cap stocks outperformed in the 4th quarter.  Growth stocks underperformed their value counterparts in December and the 4th quarter, but large cap and small cap growth stocks outperformed their value peers for the year.  

Calculated in U.S. Dollar terms, the U.S. ranked 4th out of 33 countries in international equity markets in 2011, which was a significant improvement over the U.S. ranking of 14th in 2010 and reflected the United State’s continued benefit from investor flight to safety.

Fixed income markets’ solid December performance capped off a very strong year.  Taxable bonds rose +1.1% and municipal bonds increased +1.9%.   U.S. Treasury yields ended 2011 well below the level of year-end 2010, especially for longer maturity bonds, but the yields were essentially unchanged during the 4th quarter.  As a result of the end of the Federal Reserve’s QE2 month-printing initiative, yields declined early in the year due to reduced inflation fears, but negative investor sentiment returned because of the macroeconomic turmoil in Europe and the U.S. Government debt downgrade, pushing yields lower.  The Fed’s “Operation Twist” initiative to sell shorter maturity U.S. Treasuries to fund the purchase of additional longer maturity U.S. Treasuries drove a flattening in the yield curve as well.