Many of you reading this will be surprised to discover that 2012 was a great year to be an investor. Amid the unhappy headlines, anxiety over America’s finances, a highly-partisan presidential election, worries about the Eurozone and the potential for recession, stocks quietly rewarded patient investors with double-digit gains.
The year started off with dire predictions and a lot of uncertainty about the prospects for the U.S. and global economies. The housing market was weak, unemployment was high, the Euro economies were in recession (or, in the case of Greece, bankrupt), and it was not hard to find blogs and even economic reports that predicted a catastrophic year. Investors who ignored the gloom and doom were rewarded with returns approximately twice as high as the historical averages.
Meanwhile, America breathlessly awaited a so-called “fiscal cliff” deal in Washington. The bill was finally passed and signed by President Obama. Our lawmakers defined “the rich” as those making more than $400,000 (single) or $450,000 (joint). Those persons would see their highest marginal tax rates go up to 39.6%, and pay capital gains and taxes on dividends received at a 20% tax rate, rather than the previous 15%.The bill also maintains the current $5 million estate tax exemption ($10 million for couples), but would raise the tax rate for money transferred to heirs above that amount. It would also eliminate the two percentage point cut in the Social Security payroll tax and make $24 billion in federal spending cuts, while giving Congress two additional months to decide what to do about $109 billion of automatic spending cuts that were scheduled to begin taking effect at the start of the year.
It is clear that the U.S. and global economy are still in a slow-growth recovery period, but there is some reason to be optimistic that 2013 could be a turning point in the long climb out of the Great Recession. After six years of decline, the housing market appears to have finally bottomed out in 2012. The inventory of homes on the market is down 20% or more from a year ago, and sales of existing single-family homes jumped 11% in 2012. Bank of America Merrill Lynch economies expect atleast a 3% gain from the housing sector this year, which would flip this large sector of the economy from a drag on economic growth to a boost, along the way creating construction jobs and boosting sales of appliances and other products that go with home purchases.
At the same time, the employment numbers are forecasted to steadily increase, and consumer debt is shrinking. The still-weak global economy seems unlikely to cause gas prices to rise dramatically, and some economists have pointed to the record amount of money parked in Treasuries (hence the low rates), which, if people become more confident in the stock market, could be redeployed into equities and cause prices to rise.
Wishing you a happy and healthy New Year. If you have any questions or concerns, please call.