All Eyes on November
Courtesy ANB Bank, Colorado Springs LIVING WELL Magazine
After experiencing the best start to a year since 1998, the S&P 500 weathered a disappointing April and May to reach a new four and a half year high. The S&P 500 closed at 1,437.92 on Sept. 7, 2012, its highest closing level since January of 2008.
The equity markets have been primarily driven by stronger than anticipated economic growth and expectations for more stimulus from central banks throughout the world. Expectations for economic growth were pretty low coming into the year and, while in most cases, readings have been less than what normally occurs coming out of a severe recession, the fact that the Federal Reserve and the European Central Bank have stated more stimulus will be implemented––if necessary––has given equity markets reason to rally.
As we head towards the November elections, the predominant theme for the election looks to be what is happening in the domestic economy and specifically the jobs market. The unemployment rate could be the single biggest factor as voters cast their ballots in November. The unemployment rate was 7.8% when President Obama took office, but has been above 8% every month since then. The last unemployment reading was 8.1% on Sept. 7, 2012.
Globally, most headlines continue to focus on what is happening in Europe with the continuance of the sovereign debt crisis. It seems that investors continue to watch debt auctions in Spain and Italy more than U.S. Treasury auctions. If countries in Europe see escalating interest rates and most of the continent ultimately falls into recession, the global economy will be impacted. The events of Europe must remain on investors’ radars, but we believe that investors should be much more concerned with what is happening in China. Growth in China has slowed in recent quarters and a continued slowdown will be very impactful on the global economy.
After Nov. 6, all eyes will shift focus to the pending Fiscal Cliff. The results of the election will certainly have some impact on the mandated tax increases and spending cuts that go into effect if no new legislation is passed, but the reality is that both political parties will have to compromise to pass legislation that will reduce government deficits without completely derailing the economy. A messy fight between Republicans and Democrats similar to what we saw in the summer of 2011 could be detrimental to equity markets as we close out 2012.
Going forward a well diversified portfolio with a mix of both stocks and bonds gives investors the best chance to meet their goals in the long term. While markets have certainly had their highs and lows over the years, investing in a well diversified portfolio of stocks and bonds has proven to be a money making proposition over the long term. For the stock or equity investors, a portfolio with exposure to large cap, mid cap, small cap, international and emerging market companies provides investors with the best opportunity to meet their objective on a risk-adjusted basis. For bond investors, we would recommend investments in shorter maturity securities.
For more information, please contact an Investment Management and Trust Professional at 719-381-5622.