What if the future is more bullish than the bears assume? All the fiscal cliff talk has certainly increased stock market volatility. In addition to this constant seesawing, the market is contending with anxieties about Europe, with the Eurozone now officially in another recession, and the strong possibility of higher taxes on capital gains and dividends in 2013 plus surtaxes on varieties of net investment income.1 Even so, 2013 may turn out to be a good year for stocks. Our economy looks to be healing, and that may give investors around the world more optimism.
A housing comeback appears evident. Our economy wonâ€™t fully recover from the downturn until the housing market does. We have strong indications that this is happening. The October report on existing home sales from the National Association of Realtors showed a 10.9% annual improvement in the sales pace, with the median sale price rising 11.1% in a year to $178,600. (The median sale price increased in October for an eighth straight month.) The Census Bureau noted a 17.2% annual rise in new home sales in October. Lastly, the Conference Boardâ€™s November consumer confidence poll found that 6.9% of respondents planned to buy a home in the next six months. In November 2010, less than 4% did.2,3,4
QE3 is open-ended. The Federal Reserve will keep buying mortgage-linked securities for as long as it sees fit, and the Wall Street Journal has reported that the Fed will likely broaden the effort to include the purchase of Treasuries in 2013 (compensating for the absence of Operation Twist next year). So cheap money should be around in 2013 and beyond thanks to the Fedâ€™s bond-buying efforts and its dedication to maintaining historically low interest rates.5
Earnings could improve. This last earnings season was as disappointing as analysts believed it would be, but we could see gradual improvement across upcoming quarters. Citigroup sees earnings growth of 5% this year even with minor fiscal tightening.6
Consumer confidence may be translating into personal spending. Back in November, the Conference Boardâ€™s consumer confidence index reached a mark of 73.7; the highest level since February 2008. Chain-store sales were up 3.3% during Thanksgiving week from the week before, and up 4% from last Thanksgiving week according to the International Council of Shopping Centers.7
There are economists who think 2013 could be a key transitional year, a step toward a more robust economy at mid-decade. If solid economic indicators inspire companies and consumers to spend and invest more, 2013 might surprise even the most ardent stock market bears.
- cbsnews.com Return of Europe recession is bad news for U.S. 11/15/12
- investorplace.com Existing home sales climb in October 11/19/12
- latimes.com/business LA new home sales 11/28/12
- wsj.com/economics Price rise shows a better balanced U.S. housing market 11/27/12
- marketwatch.com Treasuryâ€™s Operation twist program & long term rates 11/28/12
- cnbc.com Earnings Outlook Now in Congress Hands 11/21/12
- investors.com Fiscal cliff fears donâ€™t sink durable goods confidence 11/27/12
Damien helps individuals invest and manage risk. He is a Certified Financial Plannerâ„˘ professional and a principal of Walnut Creek Wealth Management. These are the views of Damien Couture, CFPÂ® and not intended as investment advice. Your comments are welcome. Damien can be reached at 925-280-1800 x101 or Damien@WalnutCreekWealth.com.