Fayez Sarofim & Co. Investment Counselor / Consultant

Investors entered 2012 facing an investment landscape marked by tremendous uncertainty. In addition to the ongoing issues related to recovering from the Great Recession, concerns including the possibility of European financial meltdown, real and potential conflicts in the Middle East, a “hard landing” in China, and the intractable political dynamics in the United States were weighing on investors’ minds. Despite seeing minimal progress made toward real, long-term solutions to these problems, financial markets rallied throughout 2012 as the worst-case scenarios did not come to pass. That dynamic attests to how fearful investors had been at the beginning of the year and to how low the expectations for the market have been. The S&P 500 Index gained 5.9% in the second half of the year, bringing its total return for 2012 to 16.0%. Fixed income markets, still receiving massive fund inflows, continued to see gains as well. The Barclays Capital Government/Credit Index rose 2.1% since the end of June and registered a 4.8% increase for the full year.

International markets, which had trailed their US counterparts significantly since the beginning of 2010, also began to see an improvement in their results during the second half of 2012. In July, Mario Draghi, the head of the European Central Bank, pledged to do whatever it would take to hold the euro together and demonstrated his commitment by continuing to develop new financing programs for the European financial community. In addition, leadership changes in China and Japan suggest greater attempts to stimulate economic growth. As a result, the MSCI EAFE Index saw a 13.9% gain in the second half of the year, leading to a 17.3% return for the full year.