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Déjà vu: six charts showing 2012 is eerily similar to 2011

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by Sarah Miloudi on Feb 17, 2012 at 09:58

Markets started strongly last year but took a turn for the worse as the economic landscape darkened. Is history going to repeat? Credit Suisse highlights six graphs which show an uncanny resemblence between 2011 and 2012.

Déjà vu: 2011 versus 2012

Just how similar is the start of 2012 to the beginning of 2011? Troy Asset Management’s Sebastian Lyon believes that investors could be caught out by a set of circumstances that bear an uncanny resemblance to those that hit markets 12 months ago, when positive momentum following the New Year dulled quickly.

Analysts at Credit Suisse have been pondering over the same issue, and highlight six charts they believe offer clues. This one shows how the performance of the S&P 500 from January to mid February has followed a similar path.

Macro momentum is gaining strength

This graph shows that both 2011 and 2012 started with an acceleration in macro momentum. Purchasing survey, the ISM indicator, is a closely-followed gauge of non-manufacturing business activity and at the beginning of both periods the indicator started to trend up.

Equities rebounded

The same stretch last year was also characterised by a rebound in equities. In Britain, the index of leading blue chip firms the FTSE 100 hit the 5,900 mark in mid February. This is a level that rivals last July’s peak ahead of the summer's sudden crash.

Sector rotation

There was also significant sector rotation, as Credit Suisse’s global equity strategists point out. This happened in both years and around three quarters of sectors outperformed in January 2012 after underperforming in 2011.

Banks in focus

Among these, banks stood out to the strategists. Since 2001 there has not been such a dramatic swing in broad performance, but banks were the biggest beneficiary of the shift after falling by some 20% in the second half of both 2010 and 2011.

Banks then rebounded by about 10%, but went on to underperform by around three times this level.

US private sector at odds with ISMs

In the eyes of Credit Suisse, this is where some of the confusion lies. Indicators are in some senses a little more positive than 12 months ago, with the uptake of private sector loans increasing and a simultaneous pick up in the growth of personal income levels too. But other lead indicators, namely the ISM, as featured in the previous chart, are at a lower level even if moving up as in the previous year.

The pattern is similar for the IFO, a confidence in business activity index.

‘The US housing market is finally showing signs of life and year-on-year, US private sector loan growth is above 5% and accelerating, while it was still negative at the beginning of last year,’ Credit Suisse's strategy team said.

This means that while top-line numbers might be trending in similar directions, the eerily similar start to 2012 with 2011's beginning could be a sign that something sinister is lurking around the corner.

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