NEW YORK - If you'd told investors what was going to happen in 2012 -- U.S. economic growth at stall speed, an intensifying European debt crisis, a slowdown in China, fiscal deadlock in Washington, decelerating corporate earnings growth -- and asked how the stock market would perform, few would have predicted a good year.
But that's just what they got.
The Dow Jones industrial average, the Standard & Poor's 500 and the Nasdaq composite index all ended the year substantially higher, despite losing ground in the final days of the year as concerns about the looming fiscal cliff mounted.
The Dow gained 7 percent for the year, its fourth consecutive annual advance, having started the year at 12,217. The S&P 500, which started the year at 1,257, is up 13 percent, beating the 7.8 percent average annual gain of the past 20 years. The Nasdaq also logged a better-than-average gain, 16 percent.
Including dividends, the total return on the S&P 500 index was even better: 16 percent.
Financial companies led the gains among S&P 500 stocks, advancing 26 percent, as banks continued their restructuring efforts after the recession. Bank of America more than doubled, gaining $6.05 to $11.61 and Citigroup advanced $13.25, or 50 percent, to $39.56. Utilities, the best-performing industry group last year, was the only sector of 10 industry groups in the index to decline, dropping 2.9 percent.
"There's been a lot thrown at this market, and it's proven to be very resilient," said Gary Flam, a portfolio manager at Bel Air Investment Advisors in California. "Here we are at the end of the year, and it's still relatively strong."
A strong start to 2012
Stocks started the year on a tear, with optimism about an improving job market and a broader economic recovery providing the backdrop to the S&P 500's best first-quarter rally in 14 years.
The index advanced 12 percent by the end of March, closing the quarter at 1,408, its highest in almost four years, with financial companies and technology firms leading the charge. The Dow ended the first quarter at 13,212, an 8 percent gain.
Apple was one of the star performers of the first quarter and was probably the year's most talked-about company.
The popularity of the iPhone and iPad led to staggering sales growth that helped push its stock up 48 percent to almost $600 at the end of March. Apple also announced a dividend and overtook Exxon Mobil as the U.S.'s most valuable company.
At the start of the second quarter, the intensifying European debt crisis and concerns about the impact that it would have on global economic growth prompted a sell-off.
By the start of June, U.S. stocks had given up the year's gains. Borrowing costs for Spain surged and investors fretted over the outcome of Greek elections that had the potential to pull the euro currency bloc apart.
The outlook for growth in China, the world's second-largest economy, also began to weigh on investors' minds. Economic growth there slowed to 8.1 percent in the first quarter as export demand waned, and investors worried that it would keep falling.
The Dow fell as low as 12,101 June 4. The S&P dropped to 1,278 June 1.
The second quarter was also marred by Facebook's initial public offering.
The stock sale was one of the most keenly anticipated initial public offerings in years, but investors didn't "like" the $16 billion market debut. The social network priced its IPO at $38 per share, and the stock started to fall soon after the first day of trading on concern about the company's mobile strategy.
Facebook closed as low as $17.73 on Sept. 4 before recovering to close the year at $26.62.
By the time Fed Chairman Ben Bernanke announced Sept. 13 that the U.S. central bank would start a third round of its bond-purchase program, the S&P 500 had surged 14 percent from its June 1 low. A day later, the index peaked at a five-year high of 1,466. The Dow Jones reached its peak for the year of 13,610, Oct. 5.
The shadow of the fiscal cliff
The year's final twist came in Washington.
Stocks wavered ahead of a presidential election that at times seemed too close to call, and while President Obama ultimately reclaimed the White House by a comfortable margin, the Republicans retained control of the House.
The divided government set the stage for a tense end to the year as Democrats and Republicans sought to thrash out a budget plan that would avoid the U.S. falling off the fiscal cliff, a series of tax hikes and government spending cuts that economists say would push the economy back into recession.
Initially, markets fell as much as 5 percent in the 10 days after the elections as investors worried that a divided government would not be able to agree on a budget plan to cut the U.S. deficit.
While the S&P 500 managed to recoup those losses by December on optimism that a deal would be reached, some investors are still urging caution.