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Fiscal Cliff Uncertainty Pushes Stocks Lower

Market Digest – Week Ending 12/28

There was little Christmas cheer in the equity markets. US stocks dropped during each of the four trading days this week. For a second straight week, the main culprit was sagging confidence for a last minute fiscal cliff solution. A Friday afternoon meeting between president Obama and congressional leaders failed to produce tangible results, though some lawmakers continued to voice optimism a deal can still be reached before year-end. Fiscal cliff uncertainty overshadowed a pair of encouraging housing reports.

Weekly Returns:

S&P 500: 1,402 (-2.0%)

MSCI EAFE: (-0.9%)

US 10 Year Treasury Yield: 1.70% (+0.00%)

Gold: $1,656 (-2.3%)

USD/EUR: $1.322 (+0.4%)

Major Events:

  • Wednesday – The Case-Shiller home price index showed single family home prices rose 4.3% in October from a year ago.
  • Thursday – The Conference Board’s index of consumer confidence unexpectedly fell to 66.5.
  • Friday – Pending US home sales for November rose 1.7%, ahead of most expectations.
  • Friday – President Obama met with congressional leaders to search for a fiscal cliff solution. It was reported that Obama would seek an up or down vote for his proposal on extending tax cuts for families with incomes below $250,000.
  • Friday – Hewlett Packard announced the Justice Department opened an inquiry on its ill-fated Autonomy acquisition.
  • Friday – Russian President Putin signed a law banning adoption of Russian children by US families, thawing relations between the two countries.

Our Take:

With the world focused on the fiscal cliff and European debt crisis, 2012 proved to be a hard year to lose money in the capital markets. With one trading day left, the S&P 500 is up about 14%. Small cap and international stocks are up a similar amount. Bonds had another good year, with ten year treasuries up over 4% and corporates and international bonds doing better.  Popular Gold ETFs returned about 5%.

But the major asset class individual investors held in record amounts in 2012 was the worst performing. Cash was trash in 2012, providing a negative real return. Cash has a role in most portfolios, but it should usually be a small one. There is no way know if 2013 will be as rewarding for stock investors as this year was, but there is near certainty that holding too much cash over the long term will put many financial goals at risk.

All of us at Personal Capital wish you a happy, peaceful and prosperous New Year.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
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This year, my top financial priority is:

Building my emergency fund
Paying off high-interest debt
Budgeting better
Saving for a short-term goal, like a vacation or new car
Increasing my investment contributions
Maintaining status quo - I’ve got this under control

Make moves toward your money goals with Personal Capital’s free financial tools.