Market Update
December 31, 2012
4th Quarter 2012 in Review
The quarter that just ended was a difficult one, with lots of volatility. Gains were found in financial, cyclical, and industrial stocks. Utilities lost ground while the big losers were technology and energy issues. We are glad to report positive returns in our accounts
Investors are concerned about Washington antics as competing parties seek to gain advantages with voters. One can only be disappointed if they had high expectations at the start. A more substantial concern should be the health of our trading partners in Europe and Japan, which have slipped into recession and are now buying less from us. We are also concerned by rising inventories and the relatively low level of capital investment spending. Of course, higher taxes will always be a challenge.
Against these fears, and perhaps because of the high level of "Cliff" concern, we found our intermediate term stock indicators had shifted to a more positive direction. This could mean investment opportunities for the intermediate term. Auto and home sales are beginning to rise as the natural spending tendencies of American consumers begin to revive. Auto sales are rising. The average car on the road today is 11 years old, supposedly an all-time high.
Federal Reserve (FED) action in maintaining low interest rates has so far been beneficial to equities. We are moving into a new year, which is seasonally strong for equities, less so for bonds. To take advantage of the improvement in our stock indicators for clients, we have been adjusting portfolios, seeking additional bargain stocks with good prospects and improving relative strength.
Market Outlook
Since 1945, almost half of post-election years were touched by recessions. Federal taxes are headed higher. Expanding regulations burden our business firms. Estimates from the Competitive Enterprise Institute suggest the total regulatory compliance cost burden for 2013 will top $1.8 trillion.
Quantitative Easing (QE) programs have been economically disappointing. GDP growth has averaged a lackluster 1.5% annualized rate under QE stewardship. And, with recessions touching Japan and Europe it will likely be another difficult year for exports. Offsetting these problems are areas of opportunity. Housing is recovering, and auto sales are headed higher. Energy prices are low enough to attract investment from abroad.
Home sales are rising along with home prices, which are now appreciating 3 percent annually. Still, their prices remain depressed from previous highs. "Traffic" is rising according to the National Association of Home Builders as home shoppers are out looking. When Americans are buying automobiles and homes, one knows that "all is not lost." In spite of hopeful signs, we don't look forward to an easy year, rather lots of volatility and policy shifts.
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