Quarterly Recap - 4th Quarter 2012

U.S. equity markets closed out 2012 with its best year-end trading day since 1974 as investors learned lawmakers neared a budget deal that forestalls the worst effects of the so-called "fiscal cliff" mandates. While technically breaching the cliff, Congress retroactively passed a bill that increases capital gains, dividend and income taxes on families annually earning more than $450,000. It also delays required spending cuts by two months. Amid intense volatility leading up to the year-end deadline, the 1.7% rally left the S&P 500 with a 0.9% December gain, while capping the year with a 16% return, including dividends, the best annual return since 2009. The benchmark equity index is up 110% since the bull market rally began in March 2009. Stocks around the globe rebounded from dismal 2011 returns as the world's central banks' massive stimulus efforts spurred confidence, overshadowing both Europe's third year of its debt crisis and China's economic slowdown.

Smaller capitalized U.S. companies outperformed large-cap stocks as the Russell 2000 Index, a proxy of small-cap equity performance, rose 1.9% during the fourth quarter. Small-cap stocks also beat large-caps on the year as the Russell 2000 returned 16.4%. Value edged out growth for both the quarter and on the year. The Russell 1000 Value Index rose 1.5% during the quarter whereas the Russell 1000 Growth Index lost 1.3%. For the year, the Russell 1000 Value Index rose 17.5%, while the Russell 1000 Growth Index returned 15.3%. In quarterly sector performance, five of the ten major U.S. sector groups advanced with Financials (+5.9%), Industrials (+3.7%) and Materials (+2.7%) gaining the most. Telecom (-6%), Technology (-5.7%) and Utilities (-2.9%) led to the downside. Financials (+28.8%), Consumer Discretionary (+23.9%) and Telecom (+17.9%) were this year's top performing sectors. Not including dividends, Utilities (-2.9%) was the only sector to decline last year. With dividends, Utilities returned 1.3%.

Gold prices advanced $111 per ounce (+7%) on the year, capping its 12th straight annual gain, the longest winning streak since 1920. Crude oil futures fell 7.1% in 2012, their first annual decline since 2008. The S&P Goldman Sachs Commodity Index, a broad measure tracking 24 commodities, rose 0.1% during the year. In overseas markets, as measured by the MSCI EAFE Index, developed nations outside the U.S. and Canada outperformed domestic indices during both the fourth quarter and the entire year. Among developed nations, Germany, Greece and Denmark rallied the most, climbing at least 27%. Emerging markets, as measured by the MSCI Emerging Market Index, likewise outperformed, with full year returns in excess of 18%. China's Shanghai Composite rose 3.2% for its first annual gain since 2009.

In the bond market, the Barclays US Government Bond Index fell 0.06% during the fourth quarter, slightly degrading its 2012 gain to 2%. At the other end of the credit quality spectrum, non-investment grade corporate bonds outperformed Treasuries, returning 3.3% in the quarter and 15.8% for the year, according to the Barclays US Corporate High Yield Index. Investment grade bonds, as measured by the Barclays US Aggregate Bond Index, finished 2012 with a more modest 4.2% return. The Barclays Municipals Index finished the fourth quarter with a 0.7% gain, while returning 6.8% on the year.

1. Morningstar Direct (all performance percentages are total return based, which include reinvested dividend, interest)
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

This information is compiled by Cetera Financial Group. No independent analysis has been performed and the material should not be construed as investment advice. Investment decisions should not be based on this material since the information contained here is a singular update, and prudent investment decisions require the analysis of a much broader collection of facts and context. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy.

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