4 important “Es” for 2012

When looking at 2012, as always, expect the unexpected. But for now, here are four expected influences on the markets: the 4Es.


Europe is potentially entering a recession as a result of its sovereign debt crisis. The continent is our largest trading partner, which means less potential demand for U.S. goods and services to help our own recovery. U.S. companies with businesses in Europe may see a downturn;
U.S. banks and investment portfolios likely face losses from European debt and equities. Most analysts, however, think that markets and companies have already factored in a European recession.

Emerging Markets

China’s expansion is slowing, but whether it will have a hard landing in 2012 remains to be seen. A Chinese downturn would mean lower demand for U.S. commodities, which means lower sales for companies like General Motors, for which China is a growing market. It’s important to remember, however, that emerging market countries have old-fashioned tools like capital controls, regulations and state ownership to help them avoid recession.


Employment is a bright spot for U.S. recovery. Weekly initial jobless claims are now at a rate consistent with ongoing employment growth. Layoff announcements are down sharply, and hiring intentions and online job advertising are back to 2008 levels. Hiring intentions of small business recently matched levels from before the 2008 recession; this is important because firms with fewer than 500 employees account for about half of private sector employment and non-farm private sector GDP.


Markets hate elections because they’re unpredictable.  This being an election year, investors looking for clarity on policies, regulations, and key issues like debt reduction will have to wait until 2013. But history points out the S&P 500 has gone down in only three of the 21 presidential election years since 1928.

Net of the 4Es: uncertainty. There’s also, however, unquestionably more optimism in the country than there was six months ago. We advocate staying invested in a broadly diversified portfolio for the long term; we’ll be watching and evaluating opportunities to manage for both return and risk as the year progresses.

 James Copenhaver, Director of Investment Management




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