Taken together, we think the economy will grow, at best, by 1.5% to 2.0% over the next year once a fiscal compromise is reached.
-USAA Investments Team
- Review of 2012: Despite tremendous uncertainties, investors appear to have done surprisingly well with essentially every major asset class in the black. Europe topped the headlines with most of the attention focused on Greece. With Europe still in a recession, the USAA team feels the full story has yet to unfold. In the U.S., originally strong corporate earnings turned weak and the markets became more uncertain as the “fiscal cliff” neared.
- Current state of the economy: At best, the economy is described as “muddling through.” There are many positives – corporate balance sheets flush with cash, boom in domestic natural gas and oil production, and momentum in the housing market – but higher taxes and spending cuts could signal a rise in unemployment.
- Investing internationally: The USAA team thinks that Europe will likely take center stage again this year. However, they are emphasizing several areas with the potential to outperform including non-U.S. developed market equities (largely Europe), emerging market equities (BRIC), and gold and gold mining equities. The team feels that now is the time for investing in international stocks as many look largely undervalued, but may outperform U.S. markets.
- Allocating funds: The dividend component of stock returns and the municipal bond market are two areas in which the team sees opportunities. In addition, they feel cash should be left in an ultra-safe, liquid investment vehicle and investors should consider options that provide higher yields such as short-term bonds and CDs.