January 31st, 2013 | By Nick SargenAs the New Year unfolds, investors have good reason to celebrate considering how well financial markets fared in 2012, with most markets posting double-digit returns (see Figure 1.) Still, many are wary after all the twists and turns that occurred. After surging in the first part of the year, stocks and other risk assets plummeted in May-June before staging a strong second-half rally. The catalysts for these swings were shifting perceptions about the global economy and the fate of the euro-zone.
Looking ahead, questions about the global economy linger, with the U.S. and China experiencing sub-par growth, while Japan's economy is stagnant and the periphery of the euro-zone is mired in severe recession. The over-riding issue is when global economic conditions will normalize. Views on this matter are divided. Some observers contend the recent environment constitutes the "new normal," while other research suggests it often takes a decade for countries to adjust to financial crises.