2012 Outlook from the Wealth Management Group

Understanding economic themes is important in managing money. However, it is not MB&T’s investment style to make specific economic predictions and then attempt to time the various markets based on forecasts. We are more comfortable with identifying broad financial trends, then, through proper asset allocation and diversification insulate our managed portfolios from the risks these trends may pose and conversely take advantage of the opportunities. Please take with a healthy dose of skepticism dramatic sounding New Year predictions and, as always, remain focused on the longer term. This year is likely to be impacted by three trends: 1) an improving U.S. Economy, 2) a European recession and finally 3) China’s economic growth.

Our internal U.S. economic models have been improving. Specifically, during the last half of 2011 our models gave us confidence that 2011 would not see a recession as many thought. Beginning in December, this improvement accelerated which should bode well for 2012 or at least the first half of the year. One data point helping us come to this conclusion is the unemployment claims figure which has been trending in a positive direction. Given this progress, consumer discretionary stocks are expected to outperform.

While many investors have been focused on the European sovereign debt crises, and rightfully so, the greater impact is currently coming from the collateral damage this issue is having on the European economy by driving the continent into recession. The debate now is over the scale and depth of the economic contraction. The parameters of that discussion are from “bad” to “this could get ugly”. An “ugly” European recession would likely be trouble for U.S. equity markets. As for the on going sovereign debt crises, it has not been solved. This issue may well resurface with a vengeance in the first quarter as hundreds of billions of euro debt come due and must be refinanced.

In a recent institutional investor survey, participants cited China as their number one concern in 2012. This is rather remarkable when one considers all the rotten news from Europe. What has these professionals so nervous is the recent plunge in the Shanghai stock market (-32%), declines of this magnitude usually signal more trouble to come. The Chinese economy appears susceptible to a construction spending bubble. This in turn, could send shock waves throughout the banking sector. All is not gloom and doom, however, recently the government has announced its intention to re-inflate the economy which sent the Shanghai stock index up over 5%. China needs to be watched carefully, given the size and the rapid growth of the economy any significant change in direction would likely have important repercussions globally.


This article expresses the views of the authors as of the date indicated and such views are subject to change without notice. MBT Wealth Management Group (“The WMG”) has no duty or obligation to update the information contained herein. Further, The WMG makes no representation, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is the potential for loss.

This information is being made available for educational purposes only and should not be used or construed for any other purpose. The information contained herein does not and should not be construed as an offering for advisory services, an offer to sell, or a solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning economic trends and performance is based on or derived from information provided by independent third-party sources. The WMG believes that the sources from which such information is derived is reliable; however it cannot guarantee the accuracy of such information or the assumptions upon which it is based.