With the year almost done, at least in terms of stock market activity, what better time to look at what worked in 2011 and what didn't?
Location, location, location
Sure, a lot of people complained about rising levels of correlation among various stock markets this year, with European, Asian and North American stocks dancing to the same tunes. But when it comes to index performance, you wouldn't know it: U.S. stocks were the hands-down favourites in 2011, showing the only gains among the major indexes.
The Dow Jones industrial average is set to end the year with a gain of 6 per cent, while the broader S&P 500 is up less than 1 per cent. That's not much to brag about in absolute terms, but it's huge in relative terms. Consider that most major indexes in Europe fell between 12 per cent and 25 per cent. The U.K.'s FTSE 100 was the outlier here, but even it fell 5.6 per cent – or more than 11 percentage points worse than the Dow. Meanwhile, Canada's S&P/TSX composite index is set to end with a decline of about 11 per cent.
Defense! Carve up the S&P 500 into its 10 subindexes and you'll see a trend: It paid handsomely to focus on defensive areas of the market and avoid cyclical ones. Staid utilities were the top performers in 2011, with gains of 15 per cent – and that's not factoring in dividends. Health care stocks and consumer staples were also top performers, with gains of nearly 11 per cent each.
At the bottom? Financials fell 18 per cent and materials fell more than 11 per cent.
In Canada, the moves were similar. Commodities were among the biggest drags: Materials fell 22 per cent and energy stocks fell more than 12 per cent. Tech stocks – and we're really talking about one stock here: Research In Motion Ltd. – fell a whopping 53 per cent. Financials fell 6.6 per cent.
What worked: Health care stocks, which represent a tiny slice of the market, rose more than 49 per cent. Defensive telecom services rose 19 per cent and consumer staples rose more than 4 per cent.
Commodities good; commodity producers not so much If you ignored the naysayers on gold (ehem) and cleared out the garage to store barrels of crude oil, you did well in 2011: Gold rose 10.3 per cent and oil rose 9 per cent.
On the other hand, producers of said commodities fared poorly. The NYSE Gold BUGS index of 17 international gold producers slumped 12.6 per cent, after factoring in dividends. It seems that equity investors weren't so sure that the good times would last.
Same with energy producers: The 54-member S&P/TSX oil and gas industry group fell 12.9 per cent.
The Hail Mary pass If you devoted your entire equity portfolio to Cabot Oil & Gas Corp. , then congratulations. It's the top stock in the S&P 500, with a gain of 102 per cent in 2011.
Top stock in the S&P/TSX composite index: Trilogy Energy Corp. , with a gain of 207 per cent. (Forget what we just said about underperforming energy stocks).
Fore!(casts) Wall Street strategists were a bullish bunch with their 2011 forecasts, predicting the S&P 500 would end the year at 1,379, based on their average prediction. That suggests a gain of 9.6 per cent over the starting level of the index in January. Oops: The index looks set to end the year at 1,259, up just 1 point for the year and 120 points below the average forecast.
Deutsche Bank's Binky Chadha was the furthest off: He had predicted a year-end close of 1,550. Citigroup's Tobias Levkovich was closest to the mark, with a year-end prediction of 1,300 – or just 41 points off.