Economic Outlook

Economic Data, Fiscal Agreement Improve Outlook

Against all odds, gloomy forecasts and many investors’ expectations — including some of our readers’ — a seemingly improved tone in economic news has lifted spirits, and risk assets like stocks, noticeably. But the real progress has arisen from the agreement in Washington to avoid the severest version of fiscal contraction – the dreaded “cliff”.

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Equity Portfolios

A Trying But Very Profitable Year

Although few had a kind word to say about stocks during 2012, disciplined investors were rewarded with double-digit returns in many markets – compensation for perseverance. Many, however, succumbed to traditional views on reducing risk – such as buying high-quality bonds or exiting the stock market “until things calm down” – which invariably forfeited returns two to three times what we expect the market will average going forward over the long term.

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Fixed Income Portfolios

Risk Was Rewarded In 2012

Lower quality was the principal driver of bond returns this past year, as risk-taking rewarded investors. Although the economy may not feel better to some, the stronger performance by higher-risk bonds appears to forecast at least a mild recovery. And even moderate economic strength may lead to higher market rates, a pattern which may have started after the lows hit this past summer. For now, though, the bond market remains subject to volatility as the debate continues to unfold in Washington.

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