Market Update – The Fiscal Cliff and Beyond
CAIM’s 2013 Outlook
2013 is likely to be as difficult to predict as 2012. It will be hard to discern the magnitude the impact of these changes will have on the economy and the consumer. The economy has already been moving at a slow pace and is vulnerable to a recession. While many consumers will not see their taxes rise in 2013, all consumers will be impacted by the payroll tax. This will mean fewer dollars in their paycheck and ultimately less money to spend. This paints a fairly negative picture, but on the bright side, interest rates will continue to remain low, many high quality companies remain profitable and cash, for both individual investors and corporations, remains at historical highs. This is key for a continuation of a favorably rising dividend environment.
Forbes View on the Fiscal Cliff Deal
I encourage you to take a look at this link from Forbes www.forbes.com The article lays out plainly and clearly what the bill passed by the Senate actually means for people, with the caveat that: “the battle is far from over as it remains to be seen whether the House of Representatives will approve the bi-partisan agreement or, for that matter, whether the bill will be permitted to even come to the House floor for a vote.”
Schwab Weighs In
Liz Ann Sonders, Senior VP at Charles Schwab, notes three key points in her most recent newsletter:
1) There was no ‘grand bargain’ but Congress got a deal done at the 13th hour to avert the fiscal cliff.
2) The next two months will bring more DC infighting and the resultant market angst but the 2013 outlook for the economy and market has brightened.
3) The ‘wall of worry’ is alive and well.
Specifically she notes that while the economy is slowly winding down from the impact of the huge 2009 stimulus package, there are predictions for 2013 US GDP growth from many respected sources. She sees no recession signaled by leading indicators.
If weak business confidence receives a boost from the averted cliff and once we get past the debt ceiling deadline, the pent up demand that could be unleashed might make the second half of 2013 quite a bit brighter, she argues.
Massive monetary policy easing in the form of stimulative global policy initiatives as global central banks flood the world with liquidity and low interest rates mean this year could see some increased interest in stocks relative to bonds. Because investors have been pouring trillions into bond mutual funds since 2007, they’ve missed out on the more than doubling of the market since 2009.
The S&P 500 returns in 2012 were very strong at 16%, according to Sonders, and she notes that: “…this has been one of the most unloved bull markets I’ve witnessed in the nearly 27 years I’ve been in this business. If there was ever an example of how markets “climb a wall of worry” the past four years are testament to that!” As an example she points out that Greece’s stock market was up an astonishing 33% in 2012 – making it the best among the Eurozone nations!
A potential derailment to all this positive news, says Sonders, could be brought about by a protracted battle over the debt ceiling and/or spending cuts. Another risk is inflation. All in all, however, she predicts a brighter 2013 in store!