Quarterly Market Update
Fourth Quarter 2012
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Quarterly Capital Markets Review and Outlook
Despite a recent downward revision to GDP growth for the second quarter, we are still on track to reach our baseline scenario of 2.1% growth for the year. The outlook for GDP growth in third quarter is not so encouraging given weak production data and only a modest boost in consumer spending. However, the Federal Reserve’s recently announced quantitative easing (QE3) could increase growth for the fourth quarter unless policymakers fail to address the U.S. fiscal cliff. Read more >
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Economic Outlook
We are optimistic on the accommodative monetary policy being enacted around the globe and the slowly improving U.S. economic picture while still mindful of the potential headwinds from Congress. The critical barometers for the balance of the year are clarity on the fiscal cliff, seeing tangible results from the Fed’s new monetary policy action and determining whether the ECB can contain sovereign yields. Of these measures, policymaker action remains the most important determinant, even more important than who wins the election, at least for 2012. Read more >
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Equity Outlook
Current worldwide monetary policy notwithstanding, we maintain our viewpoint that corporate profitability, liquidity and dividends remain critical driving factors of equity returns. Despite the fiscal situation, Eurozone sovereign debt issues and a stubbornly high unemployment rate, the broad U.S. equity market has risen significantly. We remain U.S. equity market centric. Read more >
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Fixed Income Outlook
While the bond market is expensive due to a prolonged flight to safety, unlike the equity market, the bond market has terminal value. The equity market can go up indefinitely as long as there are earnings to support the advance. However, the bond market can stay expensive much longer than the equity market because the bond market has a firm notional value capable of serving as a relatively safe storehouse for investor wealth. Read more >
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Q&A
On the eve of the elections, CIO John Sawyer looks ahead to the next term, expressing confidence that the U.S. economy will continue to expand, and following four years of stimulus, policymakers will begin to restore fiscal discipline around income tax revenue. While it is unlikely that we will begin paying down the outstanding deficit, as spending declines the debt will become a more reasonable percentage of overall GDP through prolonged economic expansion. The Fed’s move to push the end date of the zero Federal Funds Rate out into the distance serves to remove the action from the radar screen as a point of concern, thereby increasing investor confidence.. Read more >
BBVA Compass is the trade name for Compass Bank, which is a member of the BBVA Group. Securities products are NOT deposits, are NOT FDIC insured, and are NOT bank guaranteed. May LOSE value, are NOT insured by any federal government agency.
This material contains forward looking statements and projections. There are no guarantees that these results will be achieved.
Investing involves risk including the potential loss of principal. There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. No investment strategy, such as asset allocation, can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary. Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.
Indexes are unmanaged and investors are not able to invest directly into any index.
International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets.
Investments in stocks of small companies involve additional risks. Smaller companies typically have a higher risk of failure, and are not as well established as larger blue-chip companies. Historically, smaller-company stocks have experienced a greater degree of market volatility than the overall market average.
Equity investments tend to be volatile and do not involve the guarantees associated with holding a bond to maturity.
In general, the bond market is volatile as prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss.
Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.
The investor should note that vehicles that invest in lower-rated debt securities (commonly referred to as junk bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. The investor should be aware of the possible higher level of volatility, and increased risk of default.
Municipal bond offerings are subject to availability and change in price. If sold prior to maturity, municipal bonds may be subject to market and interest risk. An issuer may default on payment of the principal or interest of a bond. Bond values will decline as interest rates rise. Depending upon the municipal bond offered, alternative minimum tax and state/local taxes could apply.
The price of commodities is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities is widely unregulated and concentrated investing may lead to higher price volatility.
Investments in real estate have various risks including possible lack of liquidity and devaluation based on adverse economic and regulatory changes.
Other Sources: Bloomberg; California.gov; Russell.com; First page index returns are calculated on a total return basis using the following indexes: S&P 500 (SPX), MSCI World (MXWO), MSCI Emerging Markets (MXEF), Bloomberg 7-10 Year U.S. Treasury Index (USG4TR), Morningstar U.S. Agency Bond TR Index (MSBIUATR), Municipal Bond Buyer 40 Index (BBMIRNEW), Credit Suisse High Yield Index (CSHY), MSCI U.S. REIT Index (RMZ Index).
