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Q4 2012 Wealth Market Commentary

We’ll Get There When We Get There — And Not a Minute Sooner

Eric Freedman
CAPTRUST Chief Investment Officer

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While asset classes posted strong fourth quarter figures, investors continue to wait for more policy maker and central bank direction amid a reactionary investment environment.

With the holiday season in the rearview mirror, investors started 2013 with a familiar assortment of considerations. Economic growth appears to be stabilizing and even growing in certain regions, with favorable macroeconomic data emanating from China, the U.S. housing market, parts of Europe, and Japan. Corporations remain healthy with generally strong balance sheets and low financing rates thanks to central banks adopting or retaining pro-growth, low-interest-rate policies intended to stoke consumer demand. Some of these factors have already been reflected in asset class returns, with 23 of the 24 MSCI benchmark components within the MSCI All-Country World Equity Index reporting positive performance and the overall index posting a 16.9% total return in 2012. 

Bonds had a more subdued yet still decent year, with the Barclays Capital Aggregate Bond Index stringing together its thirteenth consecutive positive year, gaining 4.2%. Commodities were slightly negative for the second straight year while REITs were up sharply in 2012.

Despite largely favorable asset class returns for the full year, 2012 followed a rather circuitous path. Similar to 2011, U.S. and Europe dominated the headlines dealing with the aftermath of decade-long debt accumulation. In Europe, investors continued to show concern about Greece as well as loan woes spreading to Spain and Italy. Only after the European Central Bank provided a potential outlet for troubled countries did investor fears subside and asset prices move higher, although underlying indebtedness remains a critical issue. The U.S. found itself in a somewhat similar position with the Federal Reserve continuing to hold interest rates down via ongoing bond purchases, committing in December to a 6.5% unemployment rate target it hopes to reach before changing its monetary policy course.

After a polarizing U.S. election season, attention shifted to the year-end fiscal cliff, a $600 billion package of tax increases and spending cuts, that threatened an already fragile economy. Congress averted going over the proverbial cliff with a New Year’s Day deal that pushed some of the hard decisions into the future.

We enter 2013 encouraged about the global economy’s potential, yet realistic about some of the underlying issues that are not easy fixes. Given the underlying debt issues still circling the U.S. and Europe, sluggish economic growth plaguing Japan, and positive yet uneven emerging market growth, investors continue to ask policy makers “are we there yet?” with respect to some of the hard decisions that need to be made surrounding spending and savings imbalances. If 2011 and 2012 are prologue, we expect to see further attempts to kick the proverbial decision-making can into the future. While the past two years reflected investors’ belief that these issues were addressable, we want to see more action than words as we begin the New Year.

For more expanded commentary, please download the full version below.

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