Why was 2012 a great year?

Why was 2012 a great year?

  • 2012 was an above-average year for the U.S. stock market. The S&P 500 attained a total return of over 16%. In comparison, the average annual total return for U.S. stocks during the 20th century was 10.4%. Yet, the U.S. economy stagnated over the past 12 months with GDP growing at approximately 2% – below the average annual GDP growth rate of 3.28% in the 20th century. How can we reconcile the above-average stock market performance with the below-average economic performance? This contrast demonstrates that stock market participants care about relative, not absolute, numbers. With low expectations entering the year on the U.S. housing market, European debt negotiations and corporate growth, modest improvements in each of these areas was enough to boost U.S. stocks.
  • While it is important for politicians to compromise in order to avoid the fiscal cliff, these negotiations should help Americans focus on the one area that will make or break the U.S. budget over the next half century: healthcare spending. Government spending on healthcare now consumes 8.2% of GDP, compared to just 1.3% 50 years ago. Over the past 40 years, healthcare costs have grown 2 percentage points faster than per capita income. With a mix of public and private insurance, healthcare providers have increased rates in the private market in order to make up for the lower payments from the public market. Frequently, this has led to higher private market costs driving up insurance premiums which in turn have caused more people to look for help from the public market. These structural problems cannot be fixed easily. Increased efficiency and better incentives should be at the start of this marathon to lower healthcare costs.
  • One bright spot this year has been the improvement in the U.S. housing market. In my spring seminar, I highlighted some of the positive fundamentals of the industry: housing price-to-rent ratios reverting to historical means, many more household formations than housing starts, and historically low mortgage rates. Despite these fundamentals housing remained in the doldrums as the calendar turned toward 2012. However, I borrowed a quote from Warren Buffett to display our enthusiasm for investing in this sector: “If you wait to see the first robin, spring will already be over.” Over the past year, housing prices have risen 3% nationwide, including a 1.8% increase in Boston. We continue to believe that a U.S. recovery has its foundations in housing and that an improvement in this industry will boost consumer spending and the economy in the foreseeable future.


  • The opinions and forecasts expressed are for informational purposes only and may not actually come to pass. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or investment plan. The representative does not guarantee the accuracy and completeness, nor assume liability for loss that may result from the reliance by any person upon such information or opinions. All investments involve the risk of potential investment losses and no strategy can assure a profit. Past performance is not indicative of future results.

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