Fiscal Cliff Uncertainty Pushes Stocks Lower

in Market Commentary by

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.

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Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

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