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December was a relatively calm month in comparison to previous months, with most U.S. indexes in positive territory across equity and bond markets. And while U.S. fundamentals continued to improve in December, concern about the euro zone is still on the minds of many investors, which was reflected in negative returns in the international equity markets. Here’s a look at the market details that helped close out the year:
By the numbers:
Market activity in December, as reflected in the most common market indexes we follow.
Equity Indexes |
1-Month Returns |
Year-to-Date Returns |
Dow Jones Industrial Average1 |
1.6% |
8.4% |
S&P 500 Index2 |
1.0% |
2.1% |
Russell 2000 Index3 |
0.7% |
-4.2% |
MSCI EAFE Index4 |
-0.9% |
-11.7% |
MSCI Emerging Market Index5 |
-1.2% |
-18.2% |
Bond Indexes |
1-Month Returns |
Year-to-Date Returns |
Barclays U.S. Aggregate Bond Index6 |
1.1% |
7.8% |
Barclays 20+ Year Treasury Index8 |
3.4% |
33.8% |
Barclays U.S. Corporate Investment Grade Index9 |
1.9% |
8.4% |
Barclays U.S. High Yield Index10 |
2.7% |
5.0% |
Barclays Municipal Bond Index7 |
1.9% |
10.7% |
U.S. Treasury Yields |
As of 12/31/2011 |
As of 11/30/2011 |
As of 12/31/2010 |
3-Month U.S. Treasury Bill |
0.02% |
0.01% |
0.12% |
5 Year U.S. Treasury Bond |
0.83% |
0.96% |
2.01% |
10 Year U.S. Treasury Bond |
1.89% |
2.08% |
3.30% |
30 Year U.S. Treasury Bond |
2.89% |
3.06% |
4.34% |
| 1 |
The Dow Jones Industrial Average is an index of 30 “blue chip” stocks traded in the U.S.
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| 2 |
The S&P 500 Index is a widely followed index, and is composed of 500 widely held U.S. stocks. |
| 3 |
The Russell 2000 Index measures performance of small-cap stocks. |
| 4 |
The MSCI EAFE Index measures developed-economy stocks in Europe, Australasia and the Far East. |
| 5 |
The MSCI Emerging Markets Index measures developing-economy stocks. |
| 6 |
The Barclays U.S. Aggregate Bond Index measures performance of a wide variety of publicly traded bonds. |
| 7 |
The Barclays Municipal Bond Index measures performance of the municipal bond sector. |
| 8 |
The Barclays 20+ Year Treasury Index measures performance of longer maturity treasury bonds. |
| 9 |
The Barclays U.S. Corporate Investment Grade Index measures performance of the investment grade bond sector. |
| 10 |
The Barclays High Yield Index measures performance of the high yield bond sector. |
U.S. fundamentals
The U.S. indicators that economists watch continued to show slight improvements through the end of 2011. This has helped alleviate concerns over a double-dip recession. The Conference Board Leading Economic Index improved by 0.5% in November, following increases in the previous months of 0.9% and 0.1%. Other slight improvements in the employment picture and in housing data also helped propel domestic markets. Overall, the U.S. market is strong in comparison to Europe, while equity prices are still quite cheap relative to bonds. Thrivent Asset Management expects further earnings growth in 2012, albeit at a slower rate than we saw in 2011, when the S&P 500 earnings growth rate was in the mid-teens.
What’s happening in Europe?
European macro issues continue to frustrate the markets, and in December fears escalated once again that Europe will find itself in a recession in 2012. During the month of December, more attention turned away from banks and toward the concerns surrounding European countries’ ability to issue debt at reasonable interest rates. Beginning in January, Italy and Spain will both need to rollover significant amounts of debt into new bond issues. If the rates demanded by the market are too high, it will add to fears of government defaults and the collapse of the Euro.
For the Euro to stay as the common currency for the 17 countries that currently use it, more strict fiscal discipline will likely need to be in place to increase confidence in the governments’ abilities to pay their debts. The main focus in that debate will be the negotiations between Germany and France. Germany, as the most economically stable member, wishes to tighten the fiscal controls of the other countries, while France is still reluctant to surrender any of its budget authority.
As is often the case, the rational answer seems to be known, but politics is preventing any substantive solutions at this time.
Securities and investment advisory services are offered through Thrivent Investment Management Inc., 625 Fourth Ave. S., Minneapolis, MN 55415, 800-847-4836, a FINRA and SIPC member and a wholly owned subsidiary of Thrivent Financial for Lutherans.
For additional important disclosure information, please visit Thrivent.com/disclosures.
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