The U.S. stock market continued its strong advance this past quarter in spite of the domestic and global uncertainty. For the third quarter that ended Sept. 30, the S&P 500 (the broad measure of the market as it contains the 500 largest U.S. companies) was up 6.35 percent and a whopping 16.44 percent for 2012. So your $1,000 investment in January would be worth $1,164.40.
The stock market continues to outperform foreign markets. Within the U.S., the largest capitalized stocks (companies with total values of more than $5 billion) continue to outperform smaller capitalized companies. Why? This is proof that size matters. Concerning the fixed income/bond markets, continued pressure remains as the Federal Reserve and the European Central Bank continues to print money and inflate the world economies; the result is that performance remained flat.
With the returns we have experienced this year with the markets in lieu of much negativity, many analysts are becoming more “cautiously optimistic” moving forward, especially with the looming negative or less profitable earnings seasons where any of the many Wall Street pundits on your favorite channel are calling foreshadowing. The positive: Moving forward, the U.S. economy is growing at a below average rate as per Gov. Romney and yet we are experiencing “growth,” as per President Obama, nonetheless.
Corporate profits and corporate profit margins continue to be robust in spite of the revenues being less than expected by the analysts. The housing markets have shown improvements. The negative: much uncertainty hangs over world, domestic markets due to a slowdown with China (they make cheap stuff for the world, if consumption slows down, then they slow down), the continued debt crisis in Europe, the uncertainty over presidential and congressional elections, and the Fiscal Cliff (Jan. 1, 2013, when the Bush tax cuts, the Obama payroll tax cuts expire and the Affordable Care Act taxes go into effect. Additionally, the congressional sequestration cuts of $1.2 trillion over a 10-year period begin) all the while we hit the latest national debt ceiling of $16 trillion.
Looking ahead, if a newly-elected Congress can avoid going over the Fiscal Cliff and our economy continues to expand, the U.S. stock market should continue to advance in the fourth quarter and further into 2013. We continue to favor a diversified portfolio (a portfolio of at least 25 different stocks from various industries) — smart stock positions would be domestic companies with an above average current dividend yields and less economically sensitive businesses. We continue to favor the large capitalized stocks more so than middle and small capitalized stocks.
As an added tip, do you know that increasing your contribution to your 401(k) can have a tremendous effect in the growth or your retirement nest egg? Even if you add just an additional 1 percent of your salary, the forces of growth, compounding interest over time can have a substantial effect on your retirement account. At a minimum, you should really share your raise or bonus with yourself and sock some of that away in your 401(k). If you get a 4 percent raise, you should increase your 401(k) contribution by at least 2 percent. The more you save the less you will have to work.
The opinions and recommendations expressed herein are those of Mr. Garrido and do not necessarily reflect those of the firm and are subject to change without notice. This information is not to be construed as an offer to sell or the solicitation of an offer to buy any securities. The information contained herein has been derived from sources believed to be reliable but is not guaranteed as to accuracy and does not purport to be a complete analysis of the security, company or industry involved.