Outlook on the Economy

Equity markets were off to a fast start in the first quarter of 2012.  The S&P 500 Index posted its best quarter since 1998, up over 12%.  With the quarter’s equity returns exceeding many analysts’ annual expectations, some are being cautious, while others are diving into the opportunity for positive returns.  The risk on trade was back in the first quarter, with money flowing into riskier asset classes such as emerging market equities, and high yield bonds.  Alamo Capital remains cautiously optimistic on the economy, and we encourage investors to ensure their portfolios align with their optimal asset allocation strategies.

Continuing on the heels of strong returns from the fourth quarter of 2011, the first quarter of 2012 gave investors reason for confidence.  Unemployment fell to a 3-year low of 8.3%, which contributed to increases in retail sales and consumer confidence.  Corporations had a very strong earnings season, and balance sheets remain strong.  Greece announced a restructuring deal with their bondholders, representing a 53.5% write-down.  A debt write-down is rarely optimal, but given the economic situation in Greece, some investors feared far worse.  The housing market continues to struggle, but price declines have slowed nationwide, and the S&P/Case-Shiller Property Value Index recognized gains in some regional metropolitan areas including Atlanta, New York, and San Francisco.  As investor’s favored riskier assets, treasury yields rose, with other fixed income asset classes following suit, though some did see their spreads tighten relative to treasuries.

As we navigate through the second quarter, we will be closely monitoring housing, unemployment, and economic indicators both domestically and abroad.  Even though the Greece situation has been solved in the short term, over the long term questions remain in regards to their ability to effectively administer the austerity measures.  Greece’s neighbors, including Spain, Portugal, and Italy, are yet to affirmatively resolve their long-term structural budget deficits.  From a municipal bond perspective, local revenues have been increasing for nine consecutive quarters.  While revenues have been increasing for many municipalities, we are continuing to gauge some issuers’ ability to manage their post-employment benefits.  High gas prices could weigh on the economy, though if they fall, it would give room for optimism.  Investor confidence could be a strong indicator as large amounts of cash continue to sit on the sidelines.  Though uncertainty continues to loom, long term trends signal that the worst from the economic downturn over the last few years is behind us.

As investors continue to move toward riskier assets, now is a great time to assess your asset allocation strategy.  Some investors are not taking enough risk to achieve their expected returns, while others are taking too much risk to the point where they may not be comfortable with the short term volatility in their portfolios.  At Alamo Capital, we design our strategies in a systematic, efficient manner that strives to reduce downside risk, and help investors achieve their goals.  We encourage you to discuss your portfolio with your Alamo Capital Financial Advisor today. 

This report is prepared for informational purposes only. It is not intended as an offer or solicitation for the purchase or sale of any financial instrument or service.  Market prices and other data may be obtained from outside sources and is not warranted as to completeness or accuracy. Any comments, statements and/or recommendations made herein are subject to change without notice, and may not necessarily reflect those of Alamo Capital.  Past performance does not guarantee future results.  Alamo Capital has no affiliation with any political party. Investing involves risk. Consult with a Financial Professional for additional information to determine the suitability of this or any other financial product or issue as it relates to your particular situation.