Updated Monday, December 31, 2012 at 11:46 PM
Buoyed by optimism that the federal government was edging away from a dangerous game of fiscal chicken, stocks rallied Monday to cap off a surprisingly strong year.
The Standard & Poor’s 500 stock index gained 23.76 points, or 1.7 percent, to close out 2012 at 1,426.19. That represented a 13.4 percent gain over where the benchmark index started out the year.
The Seattle Times index, consisting of all publicly traded companies headquartered in Washington, Oregon and Idaho, fared even better. The regional index rose 40.72 points, or 1.8 percent, on Monday to finish at 2,339.75; it gained 16.8 percent on the year.
Earlier in the year, as a host of economic and geopolitical worries beset traders, “I don’t think anyone would have believed we’d be up double-digits across all equity markets,” said Robert Haworth, senior investment strategist at USBank Wealth Management in Seattle.
The biggest driver of U.S. stocks for the past several weeks has been the continuing “fiscal cliff” melodrama, which saw Democrats and Republicans battling to find a mutually acceptable way to head off steep and automatic tax increases and spending cuts.
Failure to do so, many economists warned, could plunge the United States back into recession.
But earlier in 2012, it was Europe — specifically, the hapless and debt-laden governments in Greece, Spain, Portugal and Italy — that rattled stock markets.
The fear was that any or all of those countries could default on their public debt, which would likely tank the continent’s economy and possibly drag down emerging-market countries, which depend heavily on European demand, as well.
Consequently, investors spent much of 2012 in hair-trigger mode, ready to pull out of equities at a moment’s notice — the so-called “risk on/risk off” phenomenon.
“The market generally hasn’t felt good about going up,” said Erik Ristuben, chief investment strategist for Russell Investments in Seattle. “In a year when the Russell 1000 is up around 14 percent, most of the talk has been, ‘Will Europe send us into the abyss? Will China slow down? Will the United States go off the fiscal cliff?’ ”
Even if investors felt queasy about being in stocks, they didn’t have many alternatives. As Ristuben noted, Treasury securities had a negative return after factoring in inflation, and corporate bonds weren’t much better.
That helps explain why dividend-paying stocks generally, and the utility and telecom sectors specifically, performed strongly for much of the year. But by the fourth quarter, both utilities and telecoms had fallen back, largely on concerns that yield-hungry investors had overbid them.
“You’ve seen investors diving into these spaces to capture more yield, but the issue is that there’s not a lot of growth to compensate for the risk,” Haworth said.
In the Northwest, biotech stocks were both the best- and worst-performing stocks of the year.
Sarepta Therapeutics, with offices in Bothell and Cambridge, Mass., which not long ago was fighting to stave off delisting, nearly quintupled in value last year on news of positive study results for its Duchenne’s muscular dystrophy treatment. Sarepta, formerly AVI BioPharma, finished the year at $25.80; it had spiked to nearly $45 in early October
But it was another dismal year for Seattle’s Cell Therapeutics, despite winning European approval for its non-Hodgkins lymphoma drug.
Cell Therapeutics’ shares dropped 77.6 percent, after adjusting for a 1-for-5 reverse stock split the company executed in September to avoid getting booted off the Nasdaq.
A series of reverse splits over the years has failed to give Cell Therapeutics’ stock much support: A share that cost a split-adjusted $8,724 at the end of 2002 was worth $1.30 at Monday’s close.
Several area companies made use of the new “Jumpstart Our Business Startups”, or JOBS, Act.
The law reduces disclosure and accounting rules for so-called “emerging growth companies,” to make it easier for them to go public.
ClearSign Combustion and Atossa Genetics of Seattle both took advantage of the JOBS Act in their initial public offerings.
So did Seattle’s Sound Financial Bancorp, parent of Sound Community Bank, in its “second-step” conversion from a mutual-holding company to a stock company.
Two other banking companies, Seattle-based HomeStreet and FS Bancorp of Mountlake Terrace (parent of 1st Security Bank) also went public in 2012, as did Erickson Air-Crane of Oregon.
Russell’s Ristuben said he expects 2013’s markets to be more discriminating, with fewer blunt “risk on/risk off” moves and sector-based investing, while more attention is paid to individual companies’ performance.
“A lot of the returns you’ve seen out of equities have been filling the hole that was created in 2008 and 2009,” he said. “Now, it’s hard to make the case that stocks are fundamentally cheap.”
Haworth, of US Bank, said that while the details of any final deal on taxes and government spending might affect specific industries — say, if the mortgage-interest deduction or energy tax credits were scaled back — the most important determinant for U.S. stocks in 2013 will be whether or not there is a final deal.
Assuming such a deal is reached soon, he said, its impact would be felt mostly in the first half of the year.
By the second half, he said, economic fundamentals — companies’ lean payrolls and low debt levels, modest but steady levels of consumer spending — should reassert themselves.
Drew DeSilver: 206-464-3145 or email@example.com
Traders work on the floor of the New York Stock Exchange on Monday. U.S. stocks finished the year strong despite worldwide economic and geopolitical worries that beset traders earlier in 2012.