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The middle of the year is a good time to take a pause and look at what's worked and what hasn't so far in 2012. So let's take a look at what's happened so far this year with an eye toward learning whatever lessons we can, and making educated guesses about what the rest of 2012 will bring.
Where we stand
In the U.S., the financial markets have certainly had their ups and downs, as the aging bull market in stocks and the far, far longer winning streak for the bond market have kept vying with each other for supremacy. Meanwhile, the turmoil around the world continued, as the European crisis has ebbed and flowed over the months to cause plenty of anxiety for investors, while slowdowns in China and elsewhere in the emerging-market world have made investors there reconsider whether the long-term bull story is still intact.
But a few niches deserve particular attention, not just because of their performance so far this year, but because of their implications for the future. The three I've picked stand to have a big impact on investors in the rest of 2012 and beyond.
1. Bonds haven't died
Most financial writers -- myself included -- have pointed out the sheer folly of investing in bonds at their current low yields. Even with Treasuries yielding so little that their meager income doesn't even keep up with inflation and taxes, let alone provide any real return, investors haven't slackened their demand for the perceived safety of bonds.
That's actually been great news for stock investors. As companies issue more debt, they have greater latitude to make potentially game-changing strategic moves that would push share prices up strongly. Yet the bond investors who buy that corporate debt won't share in the rewards from such moves. In fact, they'll be more at risk, because a buyout or other major strategic change would increase default risk. Fitch Ratings recently named Dow components Alcoa (NYSE: AA ) and Hewlett-Packard (NYSE: HPQ ) along with more than a dozen other companies as being particularly likely to take strong action that could benefit their shareholders at the expense of bond investors.
Bond investing has worked lately because of big capital gains from investors who've bought at low rates only to sell to investors willing to accept even lower rates. That greater-fool theory will only last so long until someone's stuck holding the bag.
2. International markets will matter more than ever
Many U.S. investors don't pay much attention to overseas markets, figuring that keeping track of the economy closer to home is challenging enough without trying to stay abreast of foreign matters. Yet if you don't stay aware of the global economy, you'll get blindsided by economic currents that will eventually affect U.S. companies.
One great example came last week, when Ford (NYSE: F ) plunged after its CFO said that losses from its international division could triple in the second quarter from their first-quarter levels. The stock drop came despite reassurances that results in Ford's North American operations and its credit division looked solid.
3. Energy's getting pulled in every direction
Volatility across all the energy markets has ramped up substantially and will likely continue to do so. Even after a recent bounce in natural gas, U.S. Natural Gas ETF (NYSE: UNG ) is still down 25% for the year. Moreover, crude oil has turned out not to be indestructible, as its price has also declined on fears of an economic slowdown.
Meanwhile, solar energy stocks have gotten hit even harder, as First Solar (Nasdaq: FSLR ) has lost half its value and Chinese solar makers have proven especially vulnerable to poor conditions in the industry. The energy industry is interconnected, so that when prices in one sector decline, it can create a cascade effect that works its way through the other sectors as well.
As last Friday's big move up in energy prices shows, good news can spur gains just as easily as bad news has led to losses. Until the macroeconomic picture gets clearer, you can expect to see more chances to get into energy stocks. If you share the long-term view that rising demand for energy will inevitably move prices higher, then these pockets of weakness should give you good buying opportunities.
Live and learn
In an ever-changing world, the lessons you've learned from the first half of 2012 can't predict the future flawlessly. To be a good investor, you can never stop learning, constantly adding to your knowledge and being better able to anticipate the future while also more efficiently handling the consequences of being wrong. If you come at investing from that point of view, you'll find you'll always find valuable lessons from watching the markets.
With the world economy being more important than ever, make sure you don't miss out on the companies that are doing the best job of taking advantage of opportunities abroad. Find out all about them in our latest special report: "3 American Companies Set to Dominate the World." This report is completely free, so don't miss out!
Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter @DanCaplinger.