Swami with a crystal ball.
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Swami with a crystal ball.
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U.S. home prices are expected to rise another 3 percent in 2013, adding to the 5 percent gain in 2012. Housing starts could increase by more than 25 percent and a 3.5 percent average annual appreciation over the next 10 years should stimulate jobs to construction and related sectors such as furniture, building materials and financials. That’s according to BofA Merrill Lynch Global Research. (Image credit: jgroup / 123RF Stock Photo)

The prognostications for the economy in 2013 are coming out, and as usual you might as well be trying to read tea leaves. Right off the bat, Wells Fargo’s and Gallup’s Investor and Retirement Optimism Index shows investor optimism at a minus 8. That’s down 32 points since July. However, that’s still a point higher than what was recorded a year earlier.

More than half (59%) say now “is not a good time” to invest in the markets, an increase from 48% recorded in May. Sixty-eight percent say they have “little to no” confidence in the stock market as “a place to invest for retirement.” Among a list of eight factors, 69% of investors ranked the deficit and divided government as the top factors “hurting” the investing climate “a lot,” followed by unemployment (67%) and the global economic slowdown (63%). Seventy-two percent of investors say it is “somewhat likely” to “very likely” that the automatic tax increases and spending cuts of the “fiscal cliff” will be pushed out six to 12 months to give the President and Congress more time to negotiate. Seventy percent say the country will go into recession in 2013 if “fiscal cliff” issues are not resolved.

Meanwhile, some who make macro predictions about global economies are waxing optimistic. Russell Investments’ is predicting overall growth in the U.S. economy of 2.1 percent for 2013 and a whopping 8 percent growth for China. Russell is optimistic about the Euro holding together but says there will be a continued tug of war between austerity and growth. However, like the results of the Wells Fargo/Gallup poll, Russell’s predictions for individual investors is tempered. The razor-edge that investors will have to walk means the uneasy and risk-adverse will probably just stay away.

“Since only positive real returns build wealth, investors are forced to confront the question of what is to be done in a yield-starved world. This ‘squeeze play’ impulses people into riskier assets; we continue to advise clients to proceed purposefully and with strategic discipline,” said Gunning. “For investors, this means attention to every detail of their portfolio management. We believe regional diversification will need to be firmly in place, as the economic center of gravity will continue to shift. As traditional investments remain flat, alternatives likely will matter more than ever. And volatility, while it certainly brings market stress, will also bring market opportunity for multi-asset, dynamically-managed portfolios.”

BofA Merrill Lynch Global Research predicts a “cloud of uncertainty” will darken market prospects for the first half of 2013, but with the fiscal certainty that will come as the “fiscal cliff” is addressed, the second half of the year will be “ultimately surprising on the upside and pushing the S&P 500 Index to 1600, a new all-time high.” The firm even went so far as to use the term “lucky 13” for investors who are cautious, but savvy.

“This time last year, the risks to global growth were to the downside as the European debt crisis, China hard landing fears and the U.S. fiscal cliff clouded the economic outlook,” said Michael Hartnett, Chief Investment Strategist at BofA Merrill Lynch Global Research. “For 2013, we expect the resolution of fiscal policy issues, another year of accommodative central bank actions and improving corporate profits to skew the macro and market risks to the upside.”

Of course the predictions wouldn’t be complete without a gauge of what the captains of commerce are thinking, and for that I looked at American Express’ survey of 200 U.S. CFOs and senior finance executives. But that picture gets a bit murky as the respondents are almost bullish about the prospects for their companies while still harboring dark thoughts about slow growth for the U.S. economy and others around the globe.

On the one hand 52 percent of these executives don’t see the fiscal cliff being resolved in 2012 and almost 80 percent expect that to affect their companies’ growth plans. Still, they say they are shifting from a defensive posture and into a more offensive stance. Three out of five are making growth oriented decisions and 69 percent expect increased profits in 2013. Not only that, but almost 90 percent say their companies will achieve what they set out to do in the coming year.

Domestic and international expansion are both on the agenda for a majority of senior finance executives in 2013 (61% plan to grow domestically and 53% internationally.) To drive growth next year, respondents report their companies plan to spend more in three key areas:

  • New technology – 61%
  • New product and service development – 59%
  • Expansion into new markets – 52%

About one in three senior finance executives (36%) expect their companies to increase headcount in 2013, primarily motivated by a focus on business growth. Companies that are hiring will emphasize areas such as customer service, IT, sales, and research and development.

You can read the complete reports at the links just below.

View original Wells Fargo Gallup Outlook

View original American Express CFO Outlook

View original BofA Merrill Lynch Global Research 2013 Market Outlook

View original Russell Investments Outlook 

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