NEW YORK ( TheStreet) - The best January for the Standard & Poor's 500 Index in 25 years has helped investors forget a depressing 2011, where a second half slowdown left the market flat for the year. Now, there is something more important to focus on.
The new year looks like a bottom for some of the troubled sectors in 2011, with last year's laggards turning into leaders and netting greater than 20% stock gains. Off big stock losses, it's easy to view a 2012 rally as a simple bounce from low valuations. That would miss the point.
A Friday jobs report that showed the U.S. economy added 243,000 jobs, pushing the unemployment rate to 8.3%, the lowest level since Feb. 2009 gave investors cause for cheer, but don't wait for a full economic rebound to start searching for recovery investments. Sector returns from the U.S. Large Cap Russell 1000 Index and the U.S. Small Cap Russell 2000 Index show that investors are eying some 2011 underperformers as 2012 winners.In some bruised and battered sectors that are showing a 2012 shine recent quarterly earnings and analyst expectations of a bottoming bode well for investors, even after a January pop. In February, the Dow Jones Industrial Average traded at its highest level since May of 2008 and the technology sector seems to breach new highs on a daily basis. Meanwhile, as of early February, U.S. companies were beating quarterly earnings estimated 60.7% of the time, with that trend improving through earnings season, according to Bespoke Investment Group data. In Europe, a looming resolution or default by Greece hasn't been a damper on markets. Government bond yields in core countries like Italy and Spain have fallen in 2012 on stronger than expected bond auctions and the European Central Bank's long-term repurchase operation. Banks facing a capital crunch like Unicredit have been able to tap investors for much needed cash. While the potential for a Eurozone recession, a Chinese slowdown and a bitter partisan divide in 2012 Presidential elections give investors plenty to fear, savvy traders may also want be a little bit greedy, targeting pockets of recovery. Here's a look at some of the sectors that may be finding a bottom, along with stock picks to watch for. For more on 2012 asset allocation themes, see Barrington Research's best stock picks for 2012 and industries to avoid.