The results of the stock market for 2011 are basically flat. While the Dow Jones Industrial Average can claim a small gain, the S&P 500 Index ended 2011 with a small loss. Likewise, the NASDAQ ended down for 2011 as well.
2011 Dow Jones Up
The Dow finished up for 2011 thanks in part to the makeup of the index. The stocks in the Down Jones Industrial Average contain only large U.S. companies. While financial companies make up a significant number of the stocks, their impact is limited because the Dow Jones Average is a price-weighted index. That means that higher priced stocks have more influence on the average than lower priced stocks.
Most financial stocks have very low share prices these days, and as a result, their performance doesn’t drag as heavily on the average. Bank of America was the worst performer in the Dow having lost 58.3 percent for the year.
The Dow Industrials finished up 5.5 percent for the year. That is three consecutive positive years for the Dow, although nobody is dancing in the streets over this year’s performance, where many components had flat or down years.
The top 5 Dow stocks for 2011 were McDonald’s (up 30.7%), IBM (up 25.3%), Pfizer (up 23.6%), Home Depot (up 19.9%) and Kraft Foods (up 18.6%).
2011 S&P 500 Down
For 2011, the S&P 500 Index finished down for the year, although it’s performance was essentially flat, down less than 0.1 percent for 2011. Unlike the Dow average,t he SP500 index is weighted based upon each stock’s market capitalization. The dismal performance of the financial stocks included in the index have large market caps and weighed heavier, pulling the index down.
For example, IBM’s high share price (around $185 per share) means that it’s positive returns for the year count a lot toward the up side for the Dow versus Bank of America’s terrible performance being only a small impact thanks to its $5 a share price. On the S&P 500 Index, however, Bank of America’s $56 billion market cap gives it much more pull.
NASDAQ 2011 Performance Down
The Nasdaq Composite Index was also down for 2011. It finished the year down about 1.8 percent.
Other Stock Markets in 2011
International markets didn’t do as well as the U.S. In Europe, the growing Euro crisis has engulfed not only Greece and Ireland, but Italy and Spain as well. Britain’s main index, the FTSE dropped 5.6 percent for the year and the main German index, the DAX, was down approximately 15. That is its first down year since 2008.
Elsewhere, the Asian index, the Nikkei was down 17 percent.
For 2011 Gold was up 10.2 percent for the year (down from this summer’s +33 percent peak). Oil was up 8.2 percent for the year.
2011 Market Recap
So, what does the market performance for 2011 mean for investors?
The small gains and losses for the year hide the extreme volatility that took place during the year through bone-headed gridlock in Washington, particularly over raising the debt-ceiling, and the building financial crisis in Europe.
Overall, regular investors would be wise to take very little stock of how the markets overall performed during 2011. Instead, investors should focus on finding good companies with strong management since those are the only ones poised to benefit from what looks to be weak economic growth during 2012.
For American’s regular lives, the markets offer no real solution or problem to the ongoing economic issues. Recent economic data suggests that the economy might FINALLY be turning a corner, assuming the current my-party-is-more-important-than-the-country mentality in Washington can either be overcome, or sidelined by a nation that has grown largely disgusted with everything the comes out of the nation’s capital.
If jobs continue to get created and Congress doesn’t break the fragile economy, 2012 might see better investment performance, and more importantly, set the stage for real economic growth and investment performance in 2013.
Happy New Year, Everybody!