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In 2011, investors witnessed civil unrest, tense debt-ceiling negotiations, and the potential collapse of the European Union. All of these events resulted in a gut-wrenching ride that concluded with an unimpressive finish.
When trading ceased Friday, the S&P 500 closed four pennies (yes, pennies!) lower than it started 2011, and the Dow recorded a modest year-over-year gain of 5.5%. Still, exasperated investors can take comfort in a few sectors that performed well along the way, and perhaps 2012 will offer better prospects.
Let's take a look at how consumers and economists feel about the year to come.
Consumers reveal holiday spirit
Every month, a nonprofit organization known as The Conference Board captures the mood of Americans through the consumer confidence index. The index reveals how Americans feel about their job prospects and personal financial situation. It also functions as a tool for estimating economic growth.
Last week, the index indicated consumers are increasingly pleased. In fact, the U.S. consumer confidence index hit an eight-month high, rising to 64.5 from 55.2 in November. This figure still lags the index average of 98 reported prior to the real estate bubble, but stands just above the 53.7 average since the end of the recession.
Considering household purchases (including health-care costs) account for approximately 70% of U.S. GDP, the slightest uptick in consumer confidence can be a reassuring sign for the broader economy.
Rising spirits could boost stocks
A confident consumer provides a boost for consumer goods companies like Procter & Gamble (NYSE: PG ) and 3M (NYSE: MMM ) . Over the past year, the stock prices of both companies have hit a wall, with P&G's share price growing only 3.1% and 3M's falling 3.8%. This could imply significant upside potential in a stronger economy, and investors can take comfort in P&G's and 3M's dividend payouts of 3.1% and 2.7% , respectively.
Furthermore, online spending increased 15% when compared to the prior year. Major online retailers including Amazon.com (Nasdaq: AMZN ) and Apple (Nasdaq: AAPL ) stand to benefit from this trend. Amazon leads this category, reporting $34.2 billion in 2010 online sales, a figure that was three times the size of its closest competitor, Staples (Nasdaq: SPLS ) . Apple, on the other hand, is a key player in the rise of mobile commerce, with 92% of mobile sales originating from an iOS-enabled device like an iPhone or iPad.
Consumer goods companies and retailers are hoping the holiday cheer carries over into 2012.
But what about those grumpy economists?
Labeled the "dismal science," the study of economics sometimes gets a bad rap. Sure, economists can be downers from time to time, but they often take their cue from overall American sentiment. Heading into the new year, rising consumer confidence plays a critical role in their economic projections.
According to a recent survey, economists predict only a slight decline in unemployment figures in 2012, but forecast increasing GDP growth to 2.4%. This figure is up from the modest 2% growth estimated for 2011. Furthermore, a housing price decrease of 3.4% revealed in the most recent S&P Case-Shiller Index has failed to downplay the bullish outlook for economists. Recently, Citigroup's U.S. equity strategist, Tobias Levkovich, released a report titled "The Raging Bull Thesis," which described six reasons to expect a strong bull market in the next 12 to 18 months. Likewise, his firm projects stock market returns of 15% in 2012.
The year ahead could provide another stomach-churning experience for investors. However, the positive influence of rebounding consumer confidence will outweigh the negative implications of sluggish housing and unemployment, in the eyes of many economists.
While the general outlook is positive, developments in the rest of the world are cause for concern. Can events in Europe, North Africa, or even China derail the U.S. recovery? The U.S. market's resiliency is difficult to gauge, but consumer confidence trends indicate the economy will keep its resolution in 2012.
For investors still underwhelmed by modest 2.4% estimates, more promising opportunities exist beyond our borders. Latin America shows incredible potential, for example, and Brazil quietly overtook the U.K. as the world's sixth-largest economy last week. Rapid growth in Latin America bodes well for the top stock recommended by our chief investment officer. For further insight, check out the recent free report "The Motley Fool's Top Stock for 2012."