Where Stocks Stand Halfway Through 2012

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2012 is half over, and the stock market has had an up-and-down start to the year. The market rose as much as 13% in the first three months of the year only to run into a crazy May, which saw the market drop 18 of 22 trading days. In recent weeks, the negative sentiment has faded a bit, and as we stood at the beginning of the day, the market is up a respectable 8.4%.

In the series I'll preview today, my fellow Fools and I will help uncover what's happened in the first half of 2012 and what to expect for the rest of the year.

What's happened?
The slow economic recovery that we've experienced for nearly three years slowed to a crawl in the first half of 2012. GDP rose 1.9% in the first quarter, and economists expect it to rise just 1.4% in the second quarter, the slowest rate since the first quarter of 2011. Economic and fiscal trouble in Europe has been a drag on the U.S. recovery, and even slowing growth in China is having an impact on us here at home.

The uncertainty has led to falling energy prices, a silver lining when the economy falters. Oil peaked above $110 per barrel in February but fell below $80 for a short time last month and now stands at about $89 per barrel. Natural gas has also fallen to lows people didn't think were possible, reaching below $2/MMBtu in April. All of this has driven the terrible performance of energy stocks from coal to natural gas to oil. Chesapeake Energy (NYSE: CHK  ) took many of the energy headlines in the first half of the year, in part due to production cutbacks because of prices, and in part because of the revelation of conflicts of interest and a number of other issues with the company's CEO and board.

The tech sector has had an up-and-down year. Apple (Nasdaq: AAPL  ) hit a new high earlier this year, but it is still an outlier in the sector. Some big names continue to struggle, including HP (NYSE: HPQ  ) , which hit a new 52-week low just this morning, and even Microsoft, which can't seem to catch up with Apple in tablets or smartphones. Pile on the disastrous Facebook (Nasdaq: FB  ) IPO and you've had a rough ride for tech stocks so far in 2012.

Retailers have had a tough time dealing with the slow economy and increased competition. Best Buy (NYSE: BBY  ) has been the poster child of the industry's challenges -- posting massive losses, losing its CEO, and announcing a major strategic shift. The Internet and discount retailers have made the environment challenging, piling on top of the rough economy.

What's going to happen?
If you're anything like me, you're already sick of it, but the election is going to be the No. 1 news item to follow in the second half of 2012. When the political rhetoric is as heated as it is this year, the government almost grinds to a halt, and this is especially problematic heading toward a "fiscal cliff" and the painful but very important debt ceiling limit.

The implications of these two events aren't small to the U.S. economy and, by extension, our investments. The last time Congress played chicken with the debt ceiling, the U.S. almost defaulted and we lost our AAA debt rating. It was likely no coincidence that GDP growth also dropped as uncertainty rose. The election will likely happen before the debate really heats up, but this throws policy, and in turn businesses, into a period of uncertainty. And if there's one thing the market doesn't like, it's uncertainty.

While a U.S. default could throw the entire country into turmoil, the fiscal cliff is a different debate that likely has more impact on your day-to-day lives. The Bush era tax cuts are set to expire on Jan. 1, and if they do, taxes will go up for everyone.

Part of the fiscal cliff is also a big cut in defense spending. As part of the last debt ceiling deal, $600 billion in defense spending cuts over the next 10 years and $55 billion in cuts will hit next year alone. Higher taxes and lower spending would have a positive impact on the deficit, but both would have a negative impact on the economy in the short term -- and if both hit at the same time, there's a chance it could tip us over into recession territory.

To add even more complexity to the situation, more provisions of Obamacare will be put in place next year and will hit medical companies in the second half of 2013. Medical devices and even investment income will be affected next year, so companies will be preparing for the rollout. Meanwhile, those who oppose Obamacare in Congress will try to prevent it from being implemented, complicating matters for companies, investors, and policy makers as 2013 approaches.

Our look in the rearview mirror and our crystal ball
Over the next week, my fellow Fools and I will provide our reviews of the first half of 2012 and preview what we see in the second half for a number of important sectors.

Check out the rest of our sector analysis:

For more stock picks from companies that should benefit from the second half of the year's biggest event -- the election -- check out our free report "These Stocks Could Skyrocket After the 2012 Presidential Election."

Get the latest on Apple in our new premium research report on the company. In it, our top technology analyst walks through the key aspects of the Apple story, including both opportunities and risks facing the company.

Fool contributor Travis Hoium manages an account that owns shares of Apple. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Apple, Best Buy, Facebook, and Chesapeake Energy. Motley Fool newsletter services have recommended buying shares of and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (14) | Recommend This Article (34)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 26, 2012, at 5:16 PM, mikecart1 wrote:

    RIP Facebook and Zynga. You both will be missed in 2013-2014 when you realize that people have moved onto other things. Facebook has become such a nuisance to the internet in general with its connection being on nearly any site worth visiting. On top of that, Facebook itself is extremely slow, crowded with useless applications, and changes all the time. It is largely unrecognizable if someone was in a coma the past 5 years.

  • Report this Comment On July 26, 2012, at 6:49 PM, xetn wrote:

    So, you killed my post? Good job.

  • Report this Comment On July 26, 2012, at 7:43 PM, watt99 wrote:

    Your post must have been about Netflix, they censored my post last week

  • Report this Comment On July 26, 2012, at 8:06 PM, hank321 wrote:

    I am decidedly underwhelmed by Facebook. Its real impact is much smaller than its many self-interested adherents claim, and limited primarily to a minority of the population, most of whom are unemployed or marginally employed.

    I closed my account (this is very hard to do,...I still get spam email from them) more than 2 years ago.

    I cannot recommend to anyone buying FB equity at any price. There are many better investment choices out there.

  • Report this Comment On July 26, 2012, at 9:56 PM, SaraW946 wrote:

    What does this mean? That Motley Fool censors posts if they voice their concern about the bad performance of stock that MF strongly promoted, as they did with Netflix?! Not good, MF!!

  • Report this Comment On July 26, 2012, at 9:58 PM, 123spot wrote:

    How can I recommend this enough? Spot

  • Report this Comment On July 26, 2012, at 10:46 PM, EvanBuck wrote:

    I certainly won't miss Facebook and Zynga. Be prepared to watch them fade into eventual oblivion and the next new social network fad comes out. (In fact, it might already be out as I type)

    It will be very interesting to see what happens as the presidential elections get into full swing. Not just the US, but also Venezuela with Chavez vs. Radonski.

  • Report this Comment On July 26, 2012, at 11:24 PM, xetn wrote:

    My post was about the "Buffett Rule" and what is important to every investor interested in capital gains, dividends and reduction of taxes. But MF does not like any negative comments regarding their "god" Warren Buffett, or anything related to Buffett.

  • Report this Comment On July 26, 2012, at 11:43 PM, TerryHogan wrote:

    @mikecart1 and @EvanBuck

    While I'm not sure about its merits as an investment, I'm pretty sure reports of Facebook's demise are greatly exaggerated and/or way premature. I mean myspace is still breathing (albeit on life support) so FB will be here for the next 2 years at least.

    I would consider the strong network effects in FBs favour, as well as the amount of time that people have invested in it. I'm not a big user myself, but I teach kids who have grown up obsessing about it and constantly updating their status. The amount of pictures that FB has stored is unbelievable. It could exist as a photo album alone. There are also a lot of demographic trends in its favour, like the increasing mobility of the world's population. I think FB will be with us for a while yet, for better or worse.

  • Report this Comment On July 27, 2012, at 12:05 AM, EvanBuck wrote:

    @TerryHogan Yes, your analysis is correct. Which is why I said "be prepared to watch them fade into EVENTUAL oblivion." Many disgruntled people who were involved in the Facebook IPO frenzy are saying that this is the collapse of Facebook, Faceageddon, Facebook is gone forever, yadayadyada. I don't believe those overexaggeraed claims, but personally adhere to the notion that Facebook will stick around as a dominant social network for a couple more years, maybe 4 at most. Myspace has become almost completely irrelevant, but as you pointed out, is still alive.

  • Report this Comment On July 27, 2012, at 4:40 AM, rayjayjj wrote:

    The author didn't mention that the January 1,2012 automatic cuts include fixed percentage cuts across the board to all of government agencies budgets. The biggest portion to defense because the USA spends a very large part of our budget on defense. Time to bring our troops home, defend our borders, get our fiscal house in order and pull America out of the gutter. Someone should take a hard look at Foreign Aid and the Federal Reserve as well.

  • Report this Comment On July 27, 2012, at 11:16 AM, enthuskeptic wrote:

    Is concern about FB a red herring, a distraction? A bit like European soccer companies, good entertainment but bad investments.

    For me energy, raw materials, food production and emerging markets are interesting.

  • Report this Comment On July 29, 2012, at 11:31 AM, rbovitt wrote:

    My son asked if I were going to buy facebook the day of the IPO I said no i will not buy facebook. What I should have done was to buy puts on facebook. I would have made some needed cash.

  • Report this Comment On August 07, 2012, at 8:18 AM, JimmyZangwow wrote:

    Facebook gone because of how the IPO and stock have been manipulated? Short-sighted investing attitudes may count it as down and out, but people get something out of using it, especially young people.

    Maybe it won't ever be a great stock (people can get what they want from it without spending a dime), but isn't the click revenue enough to preserve it for the long term?

    FB has "like" data on nearly everyone - isn't that worth something in the targeted advertising world?

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