(Bloomberg News) The U.S. is starting the year on a positive note, a sign that investors may be too gloomy.
Payrolls rose 200,000 in December, double the gain in November. A weekly measure of consumer confidence ended 2011 at a five-month high. And manufacturers reported their business in December grew at the fastest pace in six months. The combination indicates the world's largest economy has enough staying power to withstand a recession in Europe and a slowdown in China.
"Markets are absolutely preoccupied about the risks from Europe and the U.S. housing market," said John Herrmann, senior fixed-income strategist at State Street Global Markets in Boston, and the second most-accurate U.S. economic forecaster based on data from the last two years compiled by Bloomberg. "Yet we're finding the economy continues to hold together fairly resiliently. We're getting a good handoff from the fourth quarter."
Bob Doll, chief equity strategist at BlackRock Inc., the world's biggest asset manager, sees U.S. stock prices rising and yields on Treasury securities climbing this year as investor concerns about the outlook abate.
"We don't need Europe to solve all its problems in 2012," he said in a note yesterday to clients. "Since there is already such a significant 'crisis premium' baked into the markets, just avoiding disaster could be enough."
He forecasts that U.S. stocks will return at least 10 percent in 2012, beating foreign markets for a third year, as the nation's gross domestic product expands by as much as 2.5 percent. GDP grew 1.8 percent last year, according to the median forecast of economists surveyed by Bloomberg News last month.
Stocks and Treasury yields fell after William C. Dudley, president of the Federal Reserve Bank of New York, said the outlook for unemployment remains "unacceptably high,"even though the jobless rate fell to 8.5 percent, an almost three- year low. The Standard & Poor's 500 Index fell 0.5 percent to 1,275.28 at 10:10 a.m. in New York. The yield on the 10-year Treasury note fell to 1.96 percent from 2 percent.
At the close yesterday, the index was valued at 13.5 times profits, about four points below the average price-to-earnings ratio since 1980, according to data compiled by Bloomberg.
Investors last year favored bonds over stocks, as they sought refuge from the financial turmoil in Europe. U.S. Treasury securities returned 9.8 percent in 2011, their best annual performance since a 14 percent gain in 2008, Bank of America Merrill Lynch index data show. Investors bought the U.S. securities as a haven, with Europe's debt crisis threatening to infect the region's larger economies.
Damage To Economy
The damage to the U.S. economy from the euro-zone crisis has so far been smaller than forecast, Dominic Wilson, chief market economist for New York-based Goldman Sachs Group Inc., said in a Jan. 4 report. Even so, he cautioned that it's too soon to sound the "all clear."