2011 was filled with volatility and the last quarter was no exception. Market participants continued to focus on headlines generated overseas as the markets reacted to the latest remarks from European leaders. Nevertheless, investors did unwrap some joy this quarter as equity markets soared off of calendar-year lows in October into a holiday rally in late December.

Economic overview for the fourth quarter of 2011
In the United States the economic picture brightened some, receiving a large boost from improving consumer confidence readings after fear of uncertainty nearly pushed the domestic economy back into a recession at the end of the third quarter. The Consumer Confidence Index surged in the fourth quarter to a near post-recession high reading in December of 64.5. Consumers were more upbeat following a drop in the national unemployment rate to 8.5% and an increase in holiday shopping sales, which are expected to increase 3.8% year-over-year, according to the National Retail Federation.

Looking ahead
Despite the recent bit of good news, looking ahead to 2012 also forces us to reflect back on 2011 and highlight some of the uncertainties that continue to affect global markets. While geopolitical events such as the Japanese tsunami, the oil spill in the Gulf of Mexico, and tension in the Middle East were likely only temporary setbacks, other headlines such as legislative gridlock in the US and the continuing debt crisis in Europe will certainly have an impact on global economic activity in the year ahead.

Unsustainable debt burdens in Eurozone economies have pushed sovereign borrowing rates to record highs and quelled hopes for growth in the year ahead. A quick solution seems highly improbable as European leaders continue to debate the most appropriate way to help these fragile economies. Accordingly, most economists now predict a Eurozone recession in 2012 as a strong possibility.

The United States will likely feel pain from not only Europe, but also our own political challenges. With highly contested presidential and congressional elections approaching in November 2012, it is becoming more unlikely that any significant compromise legislation will be pushed through before the election as party leaders jockey for position. Consumers and business owners alike are becoming increasingly frustrated with politics in Washington following the last-minute debt ceiling deal in August and a recent contentious two-month extension to the payroll tax cut.

With all of these headwinds, we expect the worldwide economic volatility we saw in 2011 continuing into the year ahead. This volatility will likely mean substantial swings in stock prices and uneven economic growth for 2012.