As I discussed last week, 2013 will be my eighth year writing “Your Mind on Money,” and at the end of each year I have done a predictions column outlining some economic and financial market expectations for the coming year. At the end of each year I also grade myself on how I did with last year’s predictions, which I did last week.
Predictions are made mostly for fun, but at the same time every investor has to use some sort of framework when making forward-looking investment decisions, and so having some sort of investment thesis is important.
2012 was the ideal year for stock market investors. While U.S. markets did experience some limited volatility, the gyrations were nowhere near those experienced in 2011 and 2010 and investors found it much easier to participate in the double-digit returns posted by the major stock market indexes.
In this way, the 2012 stock market reminds me of the 2004 market, which also saw nice returns with limited volatility. Using this framework I would expect that continuing current monetary policy combined with growing confidence on behalf of individual investors enables the market to continue with an upward bias. I once again think small and mid-cap stocks could outperform, and unfortunately think some luster will continue to wear off dividend payers as tax rates rise.
Despite the Fed’s zero interest rate policy and continued “quantitative easing” policies, I do think interest rates (set in the bond market) will rise slightly in 2013. The yield on the benchmark 10 year U.S. Treasury is an incredible low 1.76 percent; I expect us to finish 2013 around the 2.1 percent level. While this may not seem dramatic, I believe it will serve as a sign of growing confidence in the financial markets and will actually bode well for the economy in general. Action item here: the window on super-low mortgage rates may begin closing soon.
While 2011 and 2012 were largely centered on trouble in Europe, I believe it is Asia that gets more attention next year. The Japanese are in a precarious place with their debt level and the Yen has lost 10 percent in the past three months. The currency markets are telling us something, just what, however, is hard to discern. So I expect Japan and China to dominate the headlines for a while. Would I invest there? Well I think China offers some value and after ignoring Japan for a long time, I’m getting curious.
I think 2013 will be marked by a return to moderation. With this in mind some of the fear in precious metals may wear off, and other commodities such as oil could settle into a lower range.
I think more than anything next year, investors will have to fight complacency. While some of the craziness of the past four years may be behind us, investors must remain diligent, and try as I might, I can never really be too mad at myself for taking a profit when it is there. Happy New Year.
Opinions are solely the writer's. F. Marc Ruiz is a local investment strategist and co-host of "Your Mind on Money" at noon Mondays on WLPR-FM 89.1 The Lakeshore. Reach him at firstname.lastname@example.org.