squo;RE rapidly approaching the year-end and analysts are busy finessing and publishing their 2012 outlooks. With just a couple of weeks to go before we can consign 2011 to the dustbin of history, it is probably useful to have a brief look back at how some of the major financial markets behaved over the past twelve months.
All-in-all, it hasn’t been a good year for buy-and-hold equity investors. The S&P 500 is now pretty much unchanged. Yet it has held up better than many other global indices. The FTSE 100 is down around 7 per cent; the German Dax has fallen 14 per cent while the Japanese Nikkei and China’s Shanghai Composite are down 15 per cent and 18 per cent respectively. However, it is interesting to contrast the S&P’s performance with that of three other major US indices: both the Dow Jones Industrial Average and the Nasdaq 100 are around 4 per cent higher since the start of the year. Yet the broader-based Russell 2,000, where the average market capitalisation of its constituents is relatively small at around $1.25bn, has fallen over 6 per cent.
It may have been a better year for active traders given some of the extraordinary market swings we’ve experienced, especially since the end of July. The difficulty has been calling the turns, as so many of the moves have been driven once again by political headlines and the actions of central bankers. This has made life much more difficult for traders who rely on technical analysis, as major policy decisions – or a lack of them – have tended to trump charts and studies.
Will 2012 prove to be any different? Traders are keeping a close eye on 200-day moving averages (DMA) for a number of indices. Both the S&P and FTSE continue to knock up against their 200-DMAs at 1,260 at 5,630 respectively, although the Dow and the Nasdaq have both cleared their own. Meanwhile, European policymakers have made their move towards fiscal integration. Stock market bulls are hoping that this will persuade the ECB to step up to the plate as “lender of last resort.” But time is running out, and the danger is that the ratings agencies decide that they can no longer hold off from downgrading European banks and their sovereigns.