Heading into 2012, we expressed our belief that “policymakers hold the key to navigating the next phase of the market cycle and addressing many of the sources of uncertainty.” While we had concerns about the condition of an economic expansion that was at risk of slowing, both in the United States and abroad, we also understood that policymakers could make decisions that resulted in much different investment results than might be expected from a lackluster economy. Policymakers delivered in 2012 with a broad stroke of stimulative actions that gave most investment markets reasons to cheer. Equities, both international and domestic, and high yield bonds topped the list of performers, while corporate and sovereign bonds also performed well under an accommodative policy stance from global central banks that drove interest rates and credit spreads lower. In the true sense of the market being a “voting” machine in the short run rather than a “weighing” machine, investment returns were driven by a combination of accommodative policy and modest economic growth with tepid inflation. All in all, it was an “above average” year for stocks and other risk assets by historical standards.
Each year we provide a brief review of the where the economy stands today, along with our expectations for the coming years. To read more, please visit our 2013 annual report: The Road Ahead