Economic Outlook

Economy OK In 2011, But More Uncertainty Ahead

Last year negative headlines and hyperbole prevailed, while reality was better than a regular scan of newspapers and Internet stories would lead you to conclude. U.S. and global growth were moderate, inflation slowed at year-end and earnings rose to a record.

The New Year is likely to bring continued uncertainty. A multi-year deleveraging process continues. The U.S. political process will be a conflict-rich stage, leading to the November presidential election, with more than the usual posturing and venom. Europe is still just a whisper away from renewed crisis. Emerging nations are slowing. But we’ve seen that doomsday headlines can bear little resemblance to how consumers and businesses actually spend. The U.S. could again emerge as a locomotive of growth for the world.

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Equity Portfolios

U.S. Stocks Beat Most Competitors, Including Cash

Last year financial markets experienced a bumpy flight. However, the weather at year end was “partly cloudy and in the 50s” – not quite perfect, but much better than many feared. During the year, investors were fascinated with all things negative and all things foreign, both of which turned out to be mistakes. After a 15% total return in 2010, the S&P 500 returned near 2% in 2011 including price changes and dividends, handily beating nearly every developed market in the world, emerging markets and even cash.

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Fixed Income Portfolios

Headlines Driving Bond Markets

No single comment fairly describes the broad bond market performance in 2011, with its myriad market news and events. Climbing debt levels harmed eurozone debt while investors boosted U.S. sovereign debt in spite of a historical ratings downgrade. Some investors got caught chasing returns as emerging market central banks raised rates, then cut them, pushing both bond prices and currencies lower. Municipals didn’t fail as some gloomy and very visible forecasts predicted, and actually did well.

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