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From Briefing.com: Weekly Recap - Week ending 30-Dec-11Another volatile year has passed and the U.S. stock market, as measured by the S&P 500, was the picture of relative strength. Close to unchanged for the year, the S&P 500 outperformed every major developed market and nearly every developing market. While the showing by the S&P 500 was not as strong on an absolute basis as many had wished, it was a stalwart showing in the face of double-digit percentage declines for most other major markets.

The year certainly started on an optimistic note. The S&P 500 jumped 2.3% in January and was up 8.4% by the end of April. By early August, however, the S&P 500 was down 11.0% for the year. The marked reversal of fortune was precipitated by a string of caustic events that included a spike in energy costs related to the Arab Spring, the aftereffects of the Tohoku earthquake and tsunami that hit Japan, the eurozone’s sovereign debt crisis, and the debilitating debt ceiling negotiations that ultimately prompted Standard & Poor’s to downgrade the U.S. debt rating from AAA to AA+.

In last year’s Year-In-Perspective comment, we said the market outlook was “relatively bullish, but 2011 could be another bumpy year.” While this wasn’t an extremely bold prediction, it did turn out to be quite accurate. Nobody though could have predicted the twists and turns that this year took.

In brief, 2011 was a year that saw highly correlated and extremely volatile trading action. Fundamental factors provided a base layer of support throughout the year, but they ultimately took a back seat to macro developments that drove large, headline-driven swings in the capital markets.

4:30 pm : Although the effort encountered resistance, the stock market was able to build on an early gain and overcome resistance to put itself back in positive territory for the year.

Early market participants provided a modest bid in the face of muddled action abroad and a new 11-month low for the euro following a mixed debt auction in Italy. The euro eventually worked its way higher and, in turn, bolstered broad market buying interest; the currency climbed out of the red to end the trading day with a 0.4% gain against the greenback. The euro is still down more than 3% this year, though.

Financials helped boost the broad market by providing leadership. The sector fully recovered from their prior session slump by bouncing to a 1.6% gain. Banks proved to be a primary driver of that move. However, bank stocks remain the reason for the sector's poor performance this year -- the KBW Bank Index is down 23% this year while the broader financial sector is off by 18% year to date.

Defensive-oriented stocks have generally outperformed in 2011. Year to date, utilities stocks are up more than 15%, consumer staples stocks are collectively up 11%, and the health care sector is up more than 10%.

All 10 major sectors scored strong gains today, though. Despite such broad-based strength, the S&P 500 had a hard time moving more than a couple of points above the 1258 zone, which contains its 2011 starting point and its 200-day moving average. Still, stocks never retreated and ultimately prevailed in overcoming resistance. The lack of share volume likely helped the move -- with only a half billion shares traded on the NYSE share volume was only about half of its average daily volume. Nonetheless, the S&P 500 is now fractionally positive for the year.

Economic data had little sway with the broad market, but shares of homebuilders were helped by a surprisingly strong pending home sales report. Pending home sales for November increased by 7.3%, which is greater than the 0.6% increase that had been generally expected among economists polled by Briefing.com, but less than the 10.4% increase recorded in the prior month.

The Chicago PMI for December also exceeded expectations. Although it eased down to 62.5 from 62.6 in the prior month, it was better than the reading of 60.1 that had been generally expected.

Weekly initial jobless claims jumped to 381,000 from the multi-month low of 366,000 posted for the previous week. Economists polled by Briefing.com had expected, on average that initial claims would be closer to 368,000.

The commodities complex failed to benefit from the positive tone displayed in the stock market and the dollar's decline from a multi-month high. That left the CRB Index to suffer a 0.2% loss. That said, several commodities were able to recover from new or near multi-month lows. The CRB is positioned for a year-to-date loss of about 8.5%.

Advancing Sectors: Financials +1.6%, Industrials +1.3%, Energy +1.2%, Materials +1.1%, Consumer Discretionary +1.1%, Health Care +1.0%, Tech +0.9%, Telecom +0.9%, Utilities +0.8%, Consumer Staples +0.7%
Declining Sectors: (None)DJ30 +135.63 NASDAQ +23.76 NQ100 +0.8% R2K +1.3% SP400 +1.4% SP500 +13.38 NASDAQ Adv/Vol/Dec 1888/1.03 bln/724 NYSE Adv/Vol/Dec 2381/531 mln/637

7:04AM Tegal sells Nanolayer Deposition patent portfolio for ~$4 mln (TGAL) 2.31 : To date, ~$3.6 mln has been received. Co reports that discussions are ongoing for placement of Lot 4 of the portfolio, which applies to copper barrier and low-k dielectric technology. "Interest in Lot 4 is coming primarily from IC device manufacturers, reports Robert Ditizio, Tegal's Chief Technologist, whereas interest in Lots 1 through 3 was driven largely by equipment manufacturers."

Outlook for 2012: Attractive Valuations Reflect Uncertain Times

The European debt crisis and resulting economic impact are the biggest unknowns/risks for 2012. Despite the anticipated weakness in Europe, the U.S. economy is expected to grow at a sluggish pace around 2% over the next several quarters. While this isn’t an exciting outlook, and is not likely to lead to a big improvement in the employment picture, the relative value argument for equities remains quite strong. As mentioned above, with the S&P 500 trading at 12x forward earnings, the market valuation has gotten more attractive from where we stood at the end of 2010 (14x). The earnings yield of 8.2% is very attractive when compared to a 1.9% yield on 10-year treasuries. Additionally, U.S. corporate balance sheets are strong with record levels of cash. While these factors argue for an investment in equities, the attractive valuations are a reflection of the increased risk premiums being demanded in the face of so much uncertainty.

While the European situation is the biggest potential risk for 2012, it is a known variable the market has been dealing with for quite some time now. The current situation is factored in to market values. Other variables that are likely to play a part in market valuations and volatility include the trajectory of China’s economy, the political dynamics ahead of the 2012 U.S. presidential election, and geopolitical issues that crop up around the world (North Korea, Iran seem like potential areas of concern).

As we close out the year, Briefing.com would like to thank you for your business and wish you a Happy New Year. As always, our team of analysts will continue to work tirelessly in 2012 to bring you the most important market intelligence that influences the financial markets and your portfolio every day.

Wishing you the best in 2012!

-The Briefing.com Team

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