Final Thoughts for 2012
With just two trading days remaining in 2012, the S&P 500 Index (SPX) looks positioned to enjoy a performance result north of +10% for the year. Currently, the SPX is +12.8% for 2012, not bad at all when you pull the view back to include the expectations for 2012 this time last year.
To the surprise of many, investors had multiple investment opportunities in asset classes including equities, fixed income, and real estate. Many of those caught off guard by this year’s investment opportunities will argue that the gains are artificially inflated by central bank liquidity. There is some truth to that; however, we must admit that time does heal and clearly, as we move further away from the dark months of late 2008 and early 2009, both the economy and investor sentiment are healing.
Expectations for 2013 are 180 degrees away from those of this time last year. To some, that is a cautionary signal. I expect what will be most important is continuing to execute a simple strategy and not developing grandiose investment plans early in the year. In the 2013 Q1 Playbook, I highlighted several investment themes for investors to consider. Several of those opportunities have actually presented themselves here in the last weeks of 2012. Their early performance does not alter my opportunistic view for these assets in the first quarter of next year.
The capital markets still await what I expect will be Plan C from policy makers in D.C. That alone dictates a “keep it simple” strategy. Whatever is presented to the markets from D.C. in the coming days must include a resolution on how long to extend the debt ceiling. Any plan to avoid the cliff that does not include such a defined debt ceiling outcome will keep further SPX appreciation on hold.
The month of January will include two critical weeks of corporate earnings. In the week of January 14, we will hear from multiple U.S. financial institutions and in the week of January 21, technology heavyweights move to center stage. Those two weeks will be catalysts for setting a tone for Q1 2013.
As we head into 2013, I want investors to remain prepared to act tactically within their portfolios. I suspect, however, that the continued and ever increasing daily participation from algorithmic, high frequency trading systems warrants investor focus on eliminating the resounding near-term noise those models create and lengthening holding period timeframes. Gone are the days of the late 1950s when average holding periods exceeded 36 months. I expect that average holding periods, which currently rest around 90 days, should be lengthened to smooth out some of that algorithmic noise.
Finally, a warm thank you to all of you that continue to visit the blog and commentary site. Enjoy a safe New Year’s Eve and New Year’s Day.
Life’s Two Greatest Assets, Health & Happiness, Allocate at Overweight in 2013.
Fig 1.1 S&P 500 Index (SPX) 2012 performance