“We are suffering just now from a bad case of economic pessimism. It is common to hear people say the epoch of enormous economic progress which characterized the century is over; that the rapid improvement in the standard of life is now going to slow down; that a decline in prosperity is more likely than an improvement in the decade which lies ahead.” — John Maynard Keynes
I recently read this paraphrased quote in an investment letter by Raymond James Market Strategist Jeffrey Saut. While it sounds like it could have been written this past year, it was actually penned in 1930 and titled Economic Possibilities for our Grandchildren.
And no wonder investors are pessimistic. In 2011, stock market indices experienced some of the highest volatility in years. Many macroeconomic events fueled wild swings—from the Japanese earthquake and tsunami to the “Arab Spring,” from the debt ceiling debacle and subsequent U.S. credit downgrade to the ongoing European sovereign debt crisis, all causing equities worldwide to falter and making fixed income the place to be in 2011.
Considering the wave of anxiety that covered investors during much of 2011, it may be somewhat of a surprise to many of you that the stock market staged a solid year-end rally and has continued this momentum into mid-January. So, why am I modestly optimistic in 2012?
- Corporate profits margins are at a recent high due to cost-cutting and reduced debt levels.
- Interest rates continue at historic lows, making stock valuations attractive relative to bonds.
- The presidential election year has historically witnessed a stock market increase in 15 of the last 21 elections since 1928, some say in part because the incumbent administration is focused on trying to stimulate economic growth.
- While long-term fears remain, inflation is expected to be well contained in 2012.
Of course, there will be the inevitable surprises and potential swings with some dire predictions (European recession, fears of a euro-zone breakup, Doomsday prophecies for 2012).
My message to you as investors is that we should think more about making good decisions and being patient enough to let investments work out.
When pessimism has been at such high levels, equity investors have been susceptible to positive surprises. I believe that the world as we know it will survive in 2012 and markets will recover on the receding gloom.
For additional investment insight, visit my website amysmithwealthmanagement.com and see under “News and Resources” Investment insights from Raymond James Experts and the most recent “Investment Quarterly.”
Remember, slow and steady wins the race. I welcome your comments. Just send me an email at email@example.com. All names and identifying questions will be kept strictly confidential unless written permission is given for their use.
© Amy V. Smith Wealth Management, LLC, is an independent firm. Amy is a Certified Financial Planner (CFP) and Certified Investment Management Analyst (CIMA) and offers securities through Raymond James Financial Services, Inc., member FINRA/SIPC. Her office is located at 161 Fort Evans Road, NE, Ste 345, Leesburg, VA 20176. www.amysmithwealthmanagement.com. The opinions and recommendations here are those of the columnist. Past performance does not guarantee future results.