February 2013 Monthly Outlook – Slow and steady means… never getting killed!

Being slow and steady means that you’re willing to exchange the opportunity of making a killing for the assurance of never getting killed. — Carl Richards

Profound words that I keep top of mind as I manage client portfolios.  This is certainly important right now as we see the equity markets hit 5 year highs and are within shouting distance of all-time highs. The chart below (courtesy of BigCharts) shows what happened the last times we reached these levels.


Do I think the equity markets will be higher by the end of the year – quite possibly.  Do I think they will get there without interruption – certainly not.

You may hear talk of the “January Effect”.  The concept is that if January is positive, then the rest of the year will be positive.  Over the last 50 years, 13 out of 14 times that the equity markets (basis S&P 500) were up in January, there were further gains by year-end.  However, it is never as simple as that.  Just last year (2012) the S&P 500 was up 4+% in January, only to give all that gain, and then some, back with a 6% decline in May, finally rallying in December to finish the year up 13%.

At the beginning of January 2013 the folks in Washington managed to avoid the “fiscal cliff” by passing tax legislation and deferring decisions on the issue of budget deficits and government debt. This leaves some potential pitfalls ahead in 2013 including the automatic budget sequester on March 1st , the need for a budget or another continuing resolution to fund the federal government by March 27th and the debt ceiling issue which was postponed until May 19th ..

On the positive side, I feel the U.S. economy is in its best position in many years.  There are 4 basic inputs that drive economic activity: 1) labor, 2) energy, 3) raw materials, and 4) financial capital. Right now there is a huge amount of available labor and at a reasonable price (wages).  New drilling technology has led to the collapse of natural gas prices and lower imports of oil. Raw materials prices have declined due to the slowing of Chinese economic growth.  Capital is cheap (record low interest rates) and plentiful (estimated $2 Trillion in liquid assets held by non-financial businesses).

Additionally, the consumer is also in their best position in years.  Fueled by stabilizing home prices, rising stock prices, and declines in household debt due to refinancing at low interest rates consumer net worth is on track to make a new high.  The chart below (courtesy of ISI) shows this very clearly.

Feb 2013 mthly outlook

Based on these factors I remain cautiously optimistic about economic growth and financial assets.  I will continue to monitor your portfolio relative to your investment goals, risk tolerance and time horizon.

Sources: International Strategy and Investment, Raymond James.

Although the information included in this report has been obtained from sources we believe to be reliable, its accuracy and completeness are not asserted. All opinions and estimates included in this report constitute the judgment of the financial advisor as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.


Investing involves risk and you may incur a profit or a loss. Diversification does not ensure a profit or ensure against a loss. There is no assurance that any investment strategy will be successful.  Past performance is no assurance of future results