Wall Street II: Fed policy boosts S&P500 in 2012

It’s been volatile but lucrative year for investors on Wall Street.

All but one of the 10 sectors in the S&P 500 index look set to end the year in positive territory.

Shares of banks, insurers and other financial companies are set to post the biggest gains of the year, soaring 26% from the start of the year through December 21. Bank of America, one of 2011's worst performers after the euro-zone debt crisis, a slew of layoffs and an uproar over bank fees, has more than doubled in value this year.

The next best-performing sector was consumer-discretionary stocks, which include retailers, cable and entertainment companies and restaurant chains. The group also includes homebuilders, whose shares doubled this year amid signs of recovery in the housing market.

These sectors benefited most from the US Federal Reserve’s continuing loose monetary policy, which has injected billions of dollars into the economy through bond purchases. In turn, this has boosted consumer confidence and spending.

Utilities, usually viewed as strong defensive stocks, are the only sector likely to end 2012 in the red. The sector, which includes companies that produce or distribute natural gas and electricity, was down 1.8% to December 21.

Uncertainty over the “fiscal cliff” continues to loom over both the economy and the stock market.

It is unclear whether lawmakers in Washington will be able to avert steep tax hikes and budget cuts that are due to take effect in early January.

Stocks on Wall Street fell last week as talks stalled, with the S&P 500 plunging 0.9% on December 21 – one of its biggest falls in five weeks – and dropping by another 0.2% on Monday and a further 0.5% on Boxing Day.

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