2012 Mid-Year Outlook: What the Elections Hold for Investors

At the end of last year finding a middle ground, or Meeting in the Middle, was key for growth in the markets and economy. So far, this has been reflected in economic and market data. Notably, at this year’s midpoint, the gap between consumer confidence and leading economic indicators has narrowed about halfway.

However, when divergent rational facts and emotional feelings attempt to converge, it usually comes with some ups and downs. We have experienced this in the first half of 2012, with large upswings and dramatic downdrafts in market performance. We do anticipate that this volatility will persist for the rest of 2012—though it hopefully mellows a bit as we get some clarity around the November elections.

We continue to believe that:

§         The U.S. economy will grow about 2%, supported by soft sentiment and hard data continuing to converge.

§         The U.S. stock market will likely post high single-digit to low double-digit gains, backed by mid-to-high single-digit earnings growth.

§         Corporate bonds will post modest single-digit gains and outperform government bonds.

§         Policy-driven events will hold major consequences for investors.*

In our 2012 Outlook, we stated that the party that emerges in control following the November 2012 elections will forge the decisions that represent one of the biggest shifts in the federal budget policy since World War II. During the next several months, the elections will likely become an increasingly potent driver of the overall markets and particular investments as well as determine whether our expectations for the year come to fruition.

In our Mid-Year Outlook, we explore the potential investment impacts of policy and legislative changes resulting from the election. Our outlook over the second half of 2012 for the economy, the stock market, and the bond market are on track based on our 2012 Outlook forecasts. However, financial markets will react in anticipation of potential election impacts and influence stock and bond market performance. In the stock market, we continue to focus on sectors that derive more of their growth from more rapidly growing emerging markets and business spending. In the bond market, we continue to focus on higher yielding sectors that may outperform in a low-yield environment resulting from political uncertainty, sluggish economic growth, and ongoing risks from Europe.

This election can be broken down into many issues for analysis. We can think of these issues as campaign stops on our journey across the current political landscape. As we explore these issues, we will be making stops at the White House, Congress at the Capitol Building, and the Federal Reserve. We will head down Main Street to discuss the budget, move on to talk taxes in the town square, and then make a pit stop to talk about the sector impacts of policy changes on Wall Street. Finally, we will move on to Europe for the impact of the numerous elections on the second half of 2012.

As always, if you have questions, I encourage you to contact me.

Sincerely,

Mark C. Gosselin
Branch Manager
Investment Consultant
11200 Broadway
Suite 2743
Pearland, TX 77584
281 772 4416

http://www.markgosselin.com/

LPL Financial, Member FINRA/SIPC

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

Past performance is no guarantee of future results.

This research material has been prepared by LPL Financial.

Tracking # 1-079551 | Exp. 6/13

Will the bull market last?

It seems like such a long time ago. American icons General Motors and Chrysler were getting bailouts, the big banks were being merged, and after a year and a half of steep losses we all were wondering if the stock market would ever stop falling.

Now, three years later, we marked the third anniversary of the bull market on March 9, 2012. And it hasn’t been just another bull market. This has been the strongest bull market since WWII, with the S&P 500 Index up a little over 100% in the past three years.

As the bull market enters its fourth year, many of us are questioning how far stocks will continue to climb after doubling in three years. Although the markets will likely renew the volatility that characterized much of the past three years, we believe the bull market will persist. What might spur on the bull for a fourth year?

· The confidence of consumers is rising. Retail sales have been posting solid gains. And, as a sign of improved confidence, consumers are beginning to borrow for the first time since the financial crisis and ensuing bear market.

· The employment picture is improving. The weekly total of first time filings for unemployment benefits has fallen to a four-year low. The U.S. continues to add approximately 200,000 private sector jobs each month, most recently in construction, health care, leisure and hospitality, and manufacturing.

· U.S. manufacturing trends are encouraging. One of the mainstays of U.S. manufacturing—the auto industry—is resurgent. Auto sales reached 15 million vehicles in February, the highest level since 2008. And U.S. vehicle production schedules look robust so far in 2012 as demand is helped by increasing access to credit and continuing consumer confidence.

These positive facts for the bull market are further supported by historical bull market performance. Six of the past seven bull markets since WWII lasted more than four years and the average return in year four of those bull markets has been a solid 12.7%.

Obviously, bull riding can be a rough, though potentially rewarding, experience. There are still areas of concern for investors– for example, high gas prices, slowing earnings growth and fiscal challenges. However, current trends and other positive U.S. economic data, all of which have been gaining momentum, could spur on the record-breaking bull market ride to a fourth year.

As always, please contact me with any questions.


Sincerely,

Mark C. Gosselin
Branch Manager
Investment Consultant
11200 Broadway
Suite 2743
Pearland, TX 77584
281 772 4416

http://www.markgosselin.com/

LPL Financial, Member FINRA/SIPC





The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.


The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.


The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Stock investing involves risk including the risk of loss. 


The United States Census Bureau is a division of the federal government of the United States Bureau of Commerce that is responsible for conducting the national census at least once every 10 years, in which the population of the United States is counted. The Bureau of Census is also responsible for collecting data on the people, economy and country of the United States.


The Bureau of Labor Statistics is a government agency that produces economic data that reflects the state of the U.S. economy. This data includes the Consumer Price Index, the unemployment rate and the Producer Price Index.


The Bureau of Economic Analysis is a division of the U.S. federal government's Department of Commerce that is responsible for the analysis and reporting of economic data used to confirm and predict economic trends and business cycles. Reports from the Bureau of Economic Analysis are the foundation upon which many economic policy decisions are made by government, and many investment decisions are made in the private sector by companies and individual investors.


This research material has been prepared by LPL Financial. 


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Over the last four years, the market declined in excess of 2% in a single day around 100 times, more than any other four-year period since the S&P 500 Index’s formation in 1957. On the flip-side, the market also recorded a 2% or greater gain in a single day more than any other four-year period. While the last few years have been highlighted with record swings in market returns and widely oscillating economic data, we expect 2012 will be less about the fringes and more about the middle.

While moving away from the drastic extremes will be a welcome environment for whipsawed investors, the center offers its own distinct challenges and opportunities. In 2012, finding a middle ground, or Meeting in the Middle, is going to be key for growth in the markets and economy. We believe that:

• Soft sentiment and hard data find middle ground. We expect the U.S. economy to grow about 2%, while emerging markets post stronger growth and Europe experiences a mild recession. U.S. gross domestic product (GDP) is likely to produce below-average growth of about 2% in 2012, supported by solid business spending and modest, but stable, consumer spending.
• Stocks are supported by a converging outlook for earnings growth. The U.S. stock market is likely to post a high single-digit to low double-digit gain, supported by earnings growth and a boost from a slight improvement in valuations as the pessimistic outlook for profits reflected in the markets rise to converge with a slide in the lofty expectations for earnings projected by Wall Street analysts.
• The government and corporate bond yield gap narrows. The performance gap between government and corporate bonds reverses in 2012 with corporate bonds outperforming as they post modest single-digit gains as interest rates rise and credit spreads narrow. Bond yields may be volatile, but we expect them to rise over the course of the year, with the yield on the 10-year Treasury ending the year around 3%.
• Major policy-driven events will converge on the financial markets in 2012. We believe a mild recession emerges in Europe and the debt dilemma continues to grab headlines and move markets as will the outlook for growth and financial stress in China. In addition, the 2012 elections are likely to hold major consequences for investors. The party that emerges in control following the November 2012 elections will forge the decisions that will represent one of the biggest shifts in the federal budget policy since World War II.

Consumer sentiment, business leaders, policymakers and geopolitics are going to have a significant impact on the investment environment in 2012. While volatility is likely to remain elevated, the market and its economic backdrop may begin to migrate from the extremes toward a more normalized period where investor sentiment, economic activity and the market’s direction start to move increasingly in alignment.

As always, if you have questions, I encourage you to contact me.

Sincerely

Mark C. Gosselin
Branch Manager
Investment Consultant
11200 Broadway
Suite 2743
Pearland, TX 77584
281 772 4416

http://www.markgosselin.com/

LPL Financial, Member FINRA/SIPC
　
　Important DisclosureThe opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

Past performance is no guarantee of future results.

This research material has been prepared by LPL Financial.

Tracking # 1-026870 | Exp. 11/12