Investing in 2012
December 29, 2011 Leave a Comment
Although the December rally seems to have stalled just above S&P 1250 (not far from where we started 2011,) there’s been a nice rally in some big cap recession resistant stocks like food (e.g. Kraft, General Mills,) and drug stocks (e.g. Abbott Labs and Pfizer.)
Some big retailer rallied into the end of the year while others flattened out after the early December lift from the November lows. Tech also flattened out while oil and gas stocks, although not as strong as food and drugs, did pretty well by Santa.
The big market issues facing us in the New Year continue to be:
- Will Europe’s continued incremental support of its banks and sovereign debt prevent the Eurozone from unwinding.
- Will some important economies, like the U.S. and China, continue to grow, however slowly, even if Europe goes into recession.
My view is that Europe doesn’t get enough credit in the U.S. financial press for what they have done already to stabilize thier financial system. I believe they will continue to work on it in their slow, incremental way, and the Euro will still be one of the world’s top currencies at the end of 2012.
In the U.S. the job picture doesn’t look much better going into the New Year than it has been in most of 2011, but there are consistent signs of growth in several of the recently announced economic stats, especially manufacturing.
The U.S. consumer came alive in the 4th quarter, although it’s not clear that will continue into 2012. People are still paying down debt and not optimistic about their home values. Most analysts expect the Fed to maintain an easy monetary policy through 2012, as do I.
Europe is China’s largest end market, so if Europe slows down so will China. Too, the property boom in China shows signs of slowing. However, few analysts expect China’s growth rate to slow to the point where it’s a problem, as long as the U.S., China’s second largest export market, avoids recession.
So, global recession concerns and Euro problems balanced by an easy Fed and some U.S. growth seems to be already reflected in stock (and bond) prices, and I don’t see much changing in 2012.
What to do? Dividend yield on stocks bought on market or sector pullbacks have the best chance of providing positive returns in this coming year’s probable environment. The stock groups mentioned above, food, drugs, energy, would be the first place to look.
Bonds, having priced in Fed Policy and a slow economy, offer little return potential in 2012, although they are still an important asset class for diversification.
Some selected short and intermediate term high grade corporate bonds in the banking and deep cyclical sectors, as well as selected muni’s, may offer good entries during the year for both decent yield and some appreciation.
Gold? Hold it if you own it. Buy it on dips if you don’t own enough (5-10% of your investments.)
As always, stops are important, cash is not trash, and stay diversified.
Happy New Year
) Bob
Nice Start to the New Year
February 14, 2012 Leave a Comment
The Dow is up 5%, the S&P 7%, and the Nasdaq 100 12% in the New Year, continuing the trend from December. The impetus seems to have come from an improving economy and better jobs reports in the U.S., plus the realization that Greece doesn’t spell the end of the world, whatever the outcome there.
It’s emotionally comfortable to project this trend onto the remainder of the year, but we’ve come pretty far pretty fast since the end of November. Although I feel the U.S. economy can contiue to improve this year, it looks like Europe’s economy is going to struggle some (probably in current market prices,) and there are some troubling signs in China (maybe not in current prices.)
As well, some of the most popular stocks have charts that are starting to look parabolic as others are running up against overhead resistance. There were quite a few poor end of year earnings reports and disappointing outlooks from several CEOs.
Having said all this, large cap, multi-national companies with solid and growing dividends and solid end of year reports are still attractive on pullbacks. Valuations don’t seem to be stretched in several industries like telecom, “old” tech, and healthcare, among others.
Emerging markets have rallied nicely in the past few months, after a bad 2011. It looks like time to trim a little there if you’ve got a full allocation (more than 10% of investable assets.) If you’re underinvested in emerging markets (less than 5%) a substantial (10% or more) pullback would probably be an opportunity since they are still well off their early 2011 highs. A pullback in gold could also be an opportunity as long as it stays above $1500 per ounce.
This is a very good time to go into our 401k accounts and trim laggards and research new funds that may have been added to your plan. Be willing to add to your best funds on market pullbacks. (This process is how you insulate your 401k from multi-year underperformance.)
As always, call or email with questions. Bob
Filed under Economy, Investment Management, Markets Commentary Tagged with 401k, economy, market, mutual funds, retirement, stock