The 2012 calendar year is finally upon us, and the 12 months ahead will determine whether the three major U.S. stock market indexes gain ground from last year or decline. Last year proved to be somewhat volatile for the Dow Jones Industrial Average, S&P 500 and NASDAQ Composite indexes, although all three ended 2011 close to their January opening levels.

Following are a number of key current event topics that are likely to shape the Dow, S&P and Nasdaq indexes in 2012.

Quantitative Easing

If the Federal Reserve enacts a third round of Quantitative Easing in 2012, the move could have a significant impact on U.S. and global markets. A fresh round of liquidity would, on one hand, boost funding for a number of troubled sectors while financing government expenditures, but could also result in a steep inflation rate.

Major Index Closing Numbers

The Dow Jones Industrial Average index will begin 2012 at 12,217.56 points. The Nasdaq Composite index, which is comprised of 100 tech stocks, will open at 2,605.15 while the S&P 500 begins at 1,257.60.

Below is a chart of the 2011 performance of the Dow Jones.

European Sovereign Debt

A discussion of market news in 2012 would be incomplete without considering the sovereign debt issues that have surrounded the Eurozone over the past few months. During the final quarter of 2011, governments from two EU nations were ousted following popular pressure from voters. In Greece, George Papandreou was unable to hold on to his political party’s majority and was replaced by current Prime Minister Lucas Papademos. In Italy, Sivlio Berlusconi resigned after austerity measures were passed through parliament – making way for Mario Monti to take over.

Borrowing costs for several EU countries are a major concern for 2012. Sovereign bond yields for the country of Italy begin the year above 7 percent for 10-year notes; meaning the country must pay an interest rate premium to all financial institutions and private investors who finance its sovereign expenditures. The high interest rates comes in spite of Italy raising approximately 15 billion euros in a bond auction one week ago.

Spain is also in a difficult predicament when it comes to balancing its national budget. With bond yields at over 5 percent, it too must find ways to reduce expenses and increase revenue in order to secure bailout loans.

European Central Bank

What action, if any, the ECB decides to take in 2012 will be key to determining the fate of European Union countries in 2012. Although the central bank authorized €489 billion in low-interest rescue loans to struggling regional banks last month, it sent a completely different message to troubled sovereigns – signaling that it would not extend its bond purchase program beyond the amounts that have already been determined.

United States Debt Issues

The 2011 calendar year saw a massive transfer of wealth out of European sovereigns into United States national debt. U.S. Treasury yields heading into 2012 remain around 2 percent for 10-year notes. However, the nation faces its own sovereign debt worries as politicians maneuver to reign in spending during a presidential election year.

Late last year, the Joint Select Committee of Deficit Reduction failed to agree on approximately $1.2 trillion in budget cuts, enacting automatic reductions in areas such as defense spending beginning in 2013. However, many analysts believe the budget reductions may be postponed due to politicians’ lack of motivation to enact true austerity measures during a general election year.

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