High volatility in stock prices – double the average over the past five decades – has coincided with the S&P 500 on track to notch its smallest year-end price change, around 1 percent, since 1970 when it inched down 0.1 percent (“S&P Volatility Double Average as Index Moves Least Since ’70,” by Inyoung Hwang and Alexis Xydias, Dec. 27, 2011, Bloomberg).
By a wide margin, the highest-returning stocks have been those of companies in the so-called defensive sectors – consumer staples, for example, that are less sensitive to economic trends – compared to economy-dependent sectors, Bloomberg reported. So is the glass half full or half empty?
“The combination of a very crowded trade and a market that’s very cheap with a lot of doubters suggests to me the place to put funds is in the market overall,” Andrew Slimmon of Morgan Stanley Smith Barney told Bloomberg.
The glass-half-empty crowd argues that the stock market now offers fewer buying opportunities because of the run-up in defensive sectors, Bloomberg notes, but as The Wall Street Journal reports, an economic recovery in the U.S. is hard to ignore as it generates increasingly positive signals (“Data Suggest Recovery Gaining Steam,” by Ben Casselman, Dec. 30, 2011, The Wall Street Journal).
The latest jobs, housing, and manufacturing statistics “suggest that the economic recovery is once again gaining momentum after nearly stalling out earlier this year,” The Journal reported, noting that recession anxiety peaked last summer but now is easing on signs of steady though still slow economic growth.
“We continue to hear people say that the U.S. recovery is fragile, and that’s the wrong word,” Michael Gapen, an economist with Barclays Capital, told The Journal. “It’s durable. It’s just not robust. It’s a moderate expansion.”
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