The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, and Abbott Laboratories, La Monica does not own positions in any individual stocks.
Time for some holiday cheer. Sorta. If you want to know how the economy and markets will do next year, just look back at how they fared in 2012.
Many economists and investment strategists are pulling a David Byrne and saying that 2013 will be the same as it ever was. (This is not my beautiful house!)
Another year like this one may be good for investors. The S&P 500 is currently up 14% with just a few trading days left before 2013.
But that may not be welcome news for consumers that aren't benefiting from rising stock prices -- and odds are many of you aren't. According to the latest weekly figures from the Investment Company Institute, investors continued to pull money out of stock funds in the past week and invest heavily in bond funds. That's been the case all year despite the fact that interest rates are near record lows and there are growing fears of a bond bubble.
The economy is expected to remain sluggish in 2013. The recent pickup in the housing market and decline in the unemployment rate are encouraging signs. But there is a long way to go.
I've unfortunately been writing about how we are stuck in a low and slow barbecue recovery since the summer of 2010. And looking ahead to 2013, I'm not sure much will change. (Some of my newsroom colleagues joke that I should have trademarked the BBQ recovery phrase ... or change it to the Crock-Pot® recovery.)
I'm not the only one who's worried. PNC's chief investment strategist Bill Stone had this title for his 2013 market outlook from earlier this month: "Living at Stall Speed." In his outlook, Stone noted that "job growth remains disappointingly tepid."
Making matters worse, it's December 20 and we still have no deal in Washington to keep the economy from dropping off the fiscal cliff. The White House and Congress are putting the recovery in jeopardy with their partisan bickering. You want a Plan B? Why don't you stop holding press conferences, lock yourself in a room and don't come out until you have a bleeping deal!
Stone warned that "the longer the president and Congress take to hash out a solution, the greater the odds the U.S. fiscal situation will unhinge the economic progress made during the past three years."
But even if there is a last-minute deal -- or one early on in 2013 -- the fiscal cliff shenanigans may have already done damage to the economy. Brian Frank, president of Frank Capital and manager of the Frank Value Fund, warns in an outlook piece that "companies are reducing capital spending until there is certainty from the federal government. These spending cuts have already occurred and will impact Q4 earnings reports as well as GDP."
What's more, Frank thinks that unless Congress and the president come up with a meaningful plan for fiscal sanity, we could wind up replaying the debt ceiling drama from the summer of 2001 during the first half of next year. He said that "may spook markets and cause another US ratings downgrade."
Now before you accuse me of being a pessimist or market bear, I am not trying to suggest that the U.S. economy is doomed for another recession. But it's unreasonable to expect rapid economic growth in 2013-- even though the current recovery from the Great Recession is about to enter its fourth year -- because the downturn was so brutal and it was decades in the making.
We can't keep counting on the Federal Reserve to always be there to save the day either. The impact of the Fed's quantitative easing programs is diminishing. The best you might be able to say about central bank monetary policy at this point is that it could help keep the economy afloat if the dunderheads on Capitol Hill screw up fiscal policy even further.
I'm also not expecting the stock market to implode like it did in 2008. But investors may have to be more realistic when trying to gauge how stocks will do next year.
Next year will probably be another good one to focus on companies with healthy balance sheets, solid earnings growth and dividends -- regardless of what happens to taxes. Companies like Apple (AAPL), Oracle (ORCL), Disney (DIS), Johnson & Johnson (JNJ), CVS Caremark (CVS), Union Pacific (UNP) and State Street (STT) all fit that description.
As I've written on numerous occasions, most companies have done all they can to boost earnings through cost cutting. More layoffs are not the answer for a workforce that's already stretched too thin.
To keep this market rally going, we will need to see stronger revenue growth. And that can only happen if consumers are willing to spend. And THAT will only happen if businesses are hiring more again. It really does come back to jobs.
And on that note, Happy New Year! This is the last column of 2012. Assuming the Mayans are wrong, I'll be back tweeting like a madman on Wednesday 1/2 and will have a new column the next day.
Best wishes to all for a happy, safe and prosperous 2013!
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