After observing several days of equity market declines and activities surrounding the approaching Presidential election, we wanted to touch base with you and share some of our updated views.
We are seeing some possible signs that China’s economy may be stabilizing, which could trigger improved economic growth both worldwide and domestically. As the world’s second largest economy (Source: Bloomberg), China’s status has a potential to impact global equity and commodity markets and a recovery there could be a positive as we look toward 2013.
Boeing and Facebook both posted strong earnings on October 23 indicating that there are companies that have the potential for continued growth.
We have seen some recent positive data in the housing sector.
November and December have historically shown positive seasonality for the equity markets (Source: Morris Segall Sage Policy Group).
The headwinds we have been discussing in recent reports (Europe, domestic unemployment, fiscal cliff, weak earnings) remain and we expect them to continue throughout the remainder of 2012. None of the areas that are contributing to the market volatility have abated.
It is anticipated that the election will be the first step to reduce layers of uncertainty that exist in the markets. It may also give us our first indication about a possible resolution to the fiscal cliff. These are a few of our concerns with possible results:
Will Congress remain divided and will we see entrenched positions related to the fiscal cliff resolution? A deeply divided Congress could contribute to added volatility and potential downward pressure in equity markets. On the other hand, a Congress that unites following the election with a goal of addressing the issue could contribute to potential stability and a possible year-end equity market rally.
Will we see a “relief rally” in the equity markets following the election regardless of who wins? Possibly, with one layer of uncertainty removed, however the depth and duration of any possible rally may be impacted more significantly by Congressional dialogue regarding the fiscal cliff.
Do we believe the market could react more favorably upon victory for one candidate vs. another? Arguments can be made in favor of both. For example, if we see a Romney victory, investors may assume that some of the constraints on business and regulations could be removed thus leading to a potential rally. If we seen an Obama win, markets could react favorably based on stability and a known policy platform. Only time will tell.
We anticipate that the remainder of 2012 will most likely be volatile with numerous key issues at the forefront.
By late December or early January we fully expect to have more clarity to the direction of the economy and regulations.
If we see issues being resolved in a positive manner, and anticipating the potential for reduced volatility, we would most likely adopt less defensive strategies for client portfolio holdings. Should we see gridlock in Congress, the fiscal cliff looming and a possible economic weakness in 2013, we would become more defensive.
For now, we believe remaining broadly diversified with a tilt toward defense is prudent given the current environment.
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This commentary is intended for the dissemination of general information regarding market conditions to Lowe Wealth Advisors clients. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results, and there is no guarantee that the views and opinions expressed in this report will come to pass. While any general market information and statistical data contained herein are based on sources believed to be reliable, we do not represent that it is accurate and should not be relied on as such or be the basis for an investment decision. Any opinions expressed are current only as of the time made and are subject to change without notice.
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