Was It A Good Year To Be In The Stock Market?

David Wessel, economics editor of The Wall Street Journal, talks to Steve Inskeep about the bumpy year the stock market had in 2011. And they discuss what the new year might have in store for investors.

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STEVE INSKEEP, HOST:

The end of the year is also a time to take stock of stocks, the $11 trillion Americans own in stocks and stock mutual funds. Much of this year, it was probably better if people did not look at their portfolios. So just keep your eyes away from the wildly gyrating stock market updates and just listen on occasion to David Wessel, economics editor of The Wall Street Journal and a regular guest on this program. David, good morning.

DAVID WESSEL: Good morning, Steve.

INSKEEP: Okay. Still one final trading day to go, but how'd we do in 2011?

WESSEL: Well, it was a very bumpy ride, Steve. The Dow Jones Industrial Average nearly made it to 13,000 in May. In October, it was down to 10,300. There was even a stretch in August where the Dow Jones Industrial Average rose and fell 400 points or more for four days in a row.

INSKEEP: I can't...

WESSEL: In the end, most of the indexes ended roughly where they began. Bigger companies did better than small ones. At yesterday's close, the Dow Jones was up about 6 percent, but other major indices were flat. The small company index was down. So I'd call it a break-even year.

INSKEEP: So after all of the stress of this year, all of the incredible gyrations, we ended up just a little bit ahead, but about where we started?

WESSEL: That's exactly right.

(SOUNDBITE OF LAUGHTER)

INSKEEP: That doesn't sound very good for investors, in the end.

WESSEL: Well, it isn't very good for investors, unless they had their money in some other stock market around the world. When you look around the world, Europe had a lousy year. Germany's stock market, for instance, was down 15 percent. Brazil's was down. Japan's has closed for the year now, because of their time differences, and they're down 17.3 percent since January. Even China's stock market was down for the year. So you were better in U.S. stocks than in almost any other stock market in the world.

INSKEEP: Well, now, let's look a little more closely at this. Were there different kinds of companies that did better than others in 2011?

WESSEL: Yes. One thing that stands out is that big companies did better than smaller ones. Big companies made more money. They've weathered the economic storm better. They found it much cheaper to borrow, because they can go to the bond market, to the financial markets to borrow and they don't have to rely on banks. And many of them are far more likely to have done well because they have operations all over the world, particularly in China and the rest of fast-growing Asia, which actually had a much better year than the old-money countries of the U.S. and Europe.

INSKEEP: Well, now that's very interesting because people talk about how smaller companies are where you want to look for growth or job creation or so forth. But you're saying it's actually the big corporations, the multi-nationals that were in position to pivot and deal with all the adaptations that were necessary.

WESSEL: That's right. In this particular year. That's not a rule for all time, but in this bumpy year, it was better to be riding big company stocks.

INSKEEP: What about investors who put their money somewhere other than stocks? Did they do any better?

WESSEL: Well, it was hard to make a lot of money in 2011. Interest rates at the bank and on money market funds were hugging zero nearly all year long. House prices continued to fall during the year - in some place just a little, and some places a lot. The latest data say that house prices in Atlanta, for instance, are 12 percent below year-ago levels. Gold prices have been falling lately, but actually for the year, if you were holding gold, you were up.

And one of the best-performing investments for the year, it's kind of interesting, is U.S. treasury bonds, because so many people were so scared of being in anything else, the demand for U.S. treasury bonds was very strong, and they actually were a good way to make money.

INSKEEP: Boy, that downgraded double-A plus really scared them off treasury bonds, didn't it?

WESSEL: It's all relative. The U.S. is the tallest midget now.

(SOUNDBITE OF LAUGHTER)

INSKEEP: Couple of seconds, David Wessel. When you look at where investors seem to be moving their money now, do you get any hints about what they think the future holds?

WESSEL: Well, the stock market's a fickle indicator, but the best you can say is that in the last couple of months, it's been doing pretty well. And that seems to suggest that investors are getting a little more optimistic as we go into the new year than they were last summer.

INSKEEP: David, Happy New Year.

WESSEL: Happy New Year to you, Steve.

INSKEEP: David Wessel, economics editor of The Wall Street Journal.

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