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Good morning,
Markets are called to open higher this morning. This is what's happening today:
If you bought the DAX or the CAC at the start of 2012, your portfolio is doing pretty well. The CAC 40 is up 15.4% for the year and the DAX 30 is up 28.7%. In the US the NASDAQ is up 16% and the S&P is up 13.5%. Despite the volatility we have seen in the markets in 2012, the gains were substantial across the board. This came on the back of a hard sell off in 2011. Despite the decent gains in the markets, there is more that can be squeezed out of the equities. If we get more stimulus from the Fed today, expect further strengthening of the indices. And this applies each time we get stimulus from countries around the world which try to boost their economic growth and get out of recession. This is what 2013 will be. A year of stimulus by central banks and the start of a slow recovery in global growth.
Investors like stimulus but they are also worried about inflation and the best way to take advantage of both the stimulus and the worry of inflation is to get exposed to equities. High yield was the best performing asset class in 2012. At best you'll earn the coupon in 2013. My opinion is that we will start seeing money shift out of high yield into equities going into 2013 and it will be the equities that will perform best. Don't forget that while high yield is trading at all time highs, equities are still trading below their long term average. The investor would ask 'but why should I buy equities today when the outlook for 2013 is not looking so good and the OECD just cut global growth forecasts?' The equity story is never a one month tale. The postion needs time to mature in a portfolio and ideally we are talking about 5 years. Within the next five years, as we go beyond 2013, economic growth is projected to pick up at decent rates. And it is in times like these that it makes sense to 'buy low and sell high'. What is certain is gone are the days of passive portfolio management. If you want to make good returns you need to actively manage your portfolio to generate alpha by being exposed to the correct sectors. When the markets rally there are sectors which rally much more than others. Make sure you know what sectors the constituents in your portfolio are in. Warren Buffett once said 'What the wise do in the beginning, fools do in the end.'
Going into 2013, I feel optimistic that we will continue to build on the progress we have seen in 2012. I think technology, basic materials, industrials, cyclicals and gold are the sectors you should be buying. With regards to financials I would stick to an ETF and I won't try to out perform the market. Financials are volatile and yes it is important to have exposure to them because when they rally, they rally hard. But the opposite is also true. And you don't want to lose a year's hard work just becuase you have some financials which didn't do well. Holding an ETF will solve this problem. Let's be honest. Not even the professionals at JP Morgan feel comfortable with the complications in financials. The best advice is to keep it simple. Financials are just one sector of the market. For a list of the stocks which we believe will outperform in 2013, contact your advisor.
US stocks rallied yesterday, with the Dow Jones Industrial Average erasing its decline since Election Day, as traders awaited progress on federal budget negotiations. Economists are expecting that the Fed will today announce $45 billion in monthly Treasury buying after a two-day meeting. This is the day the markets were waiting for to start of the christmas rally. The US economy is recovering, and the consensus is that the Fed will make a move to add more strength to it. If the Fed announces more stimulus we will see a further strengthening in the markets. Regarding the Fiscal Cliff, there seems to be progress being makde between the Republicans and Democrats.
In India, industrial-production recovered to grow at the fastest pace in more than a year in October after the government overhauled policies to boost growth in Asia’s third-largest economy. Output at factories, utilities and mines climbed 8.2% from a year earlier after a revised 0.7% decline in September. Prime Minister Manmohan Singh has opened the nation to more foreign investment in the past three months and stepped up efforts to pare a budget deficit to reinvigorate an economy beset by faltering domestic spending and exports. The government plans to announce measures to boost overseas sales this week after shipments fell for a seventh month in November, while the Reserve Bank of India has signaled it may reduce interest rates next quarter if inflation eases.
An important day for the Italian today as the government is going to issue E6.5bln 12 month paper. Despite the political uncertainty in Italy, the market is expecting the yields on 12-month paper to drop. Will will have the results of the auction later on today. Tomorrow is also an important day for Italy as they auction 3-year paper.
All in all I think we will have a good session in the markets today if the Fed doesn't disappoint. Keep on holding on it is still good to be in the markets.
I'd like to conclude with a short note on Apple which I think will have an excellent year in 2013. Apple most likely will not pay a special dividend in 2012 because most of its cash is overseas. But neither is it in Apple's style to play around with the markets and find loop holes to issue dividends. What analysts are now expecting is for Apple to boost its quarterly dividend by at least 10%. Despite all the news we hear on Apple, I still think its one of the greatest stocks of all time and I still believe it is cheap and this is just the start for Apple and not the end. Steve Jobs was influential and he gave Apple its foundation. But Tim Cook and his team are doing very well and will surprise the market.
Don't forget despite all the goods Jobs did for Apple he also had character issues and alot of good people left Apple becuase of him. He was a visionary but he wasn't the only man that made Apple what it is today. Jonathan Ives is another person within Apple who has the potential of being the next Steve Jobs. Apple was never a one man band and even when Jobs left Apple to star Next, Apple's share price doubled. I'm not saying that the man didn't make a difference. All i'm saying is that he was a key player in a team of perfectionists. Life goes on and Apple will continue to dominant. Just wait and see.
Good day and happy trading!
Kristian Camenzuli
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