Good day and welcome to the last week of February. With earnings season all pretty much wrapped up, attention has started to focus on the upcoming debt ceiling issues in the USA. Although this is no surprise to our readers (as we’ve been talking about this since the beginning of January), let’s revisit this again just to make sure we’re all on the same page. Basically the US is fast approaching spending cuts that will come into effect unless the government intervenes. The US government has delayed these cuts from coming into place for some time already and seem to continue to drag their feet on the matter. And this is evident from when they first postponed them from August 2012 to Dec 31st 2012, then on Dec 3rd 2012, postponed them again to the beginning of March 2013. Talk about procrastination!
So, what impact will this have if it doesn’t get delayed or resolved? Certainly we’ll have a lot more finger pointing US Stocks Rising
from the politicians but it will also raise further concerns about the strength of the US economy, which is still the largest economy globally. With US stocks having gained about 5% since the start of the year, in addition to their gains from 2012, investors are (and should be) looking to protect those earnings as we’ve already seen volatility start to increase ahead of this issue. The US S&P ended the week down about -0.5% from the start of Monday.
Fundamentally stocks should continue on their rise with most companies reporting better than expected earnings and growth numbers which were relatively in line with expectations around the globe. So we have a little tug-of-war here going on between investors who see the fundamentals pushing values higher, and the investors who want to secure some of those profits around their recent highs. What’s the best approach to take you ask? A bit of both would be prudent at this time.
From our point-of-view, investors with strong weightings in equities could consider some slight profit taking off the top and allocating those proceeds into fixed interest areas such as bonds, thereby helping to reduce their volatility exposure, while investors with a longer investment horizon might want to simply ride out the volatility and continue buying assets with little change. Ultimately though, we do know that this US debt issue will get resolved and the focus will then shift, which at that time should allow stocks and assets to rise again as we’ve seen in the past. With that said, every investor should retain a balanced outlook and maintain holdings in a range of equities, commodities, energy, gold, and bonds.
For Austen Morris Associates’ investors – remember to hold a balanced portfolio and talk with your advisor about any repositioning to take advantage of markets at this time. For more updates on the world financial news please visit our Weekly Global Economic Outlook.
Co-Head of Portfolio Management,
Darren Cox
Austen Morris Associates Wealth Management & Investment Team
www.austenmorris.com
