The fiscal cliff debate playing out in Washington has predictably turned into a three-ring circus of political posturing and gamesmanship.
The media breathlessly reports each twist and turn of this made-for-TV drama adding to investor anxiety about the outcome. At the end of the day, the political wrangling will be resolved, one way or another, within the next four weeks.
Then thankfully, at least some of the uncertainty and anxiety hanging over the markets will be removed.
Whatever our elected leaders in Washington decide, you can be sure the investment impact will echo throughout 2013 and beyond, affecting every investor’s portfolio to some degree.
That’s why this is a good time to look past the precipice, and start thinking about the post fiscal-cliff landscape.
Then ask yourself …
What Investment Themes and Profit Opportunities
Can Be Uncovered on the Other Side?
A great source of anxiety today is the uncertain outlook for U.S. and global economic growth.
Europe is already in recession. And the biggest concern for investors is whether the U.S. soon follows. Certainly if we plunge over the fiscal cliff on January 1, 2013, the toxic combination of spending cuts and tax hikes will do serious damage to our already weak economy.
The reality is that some of this damage is already done …
During third-quarter earnings season many corporate executives made it crystal-clear they are already postponing hiring, investment, and spending decisions ahead of the cliff. And markets have reacted accordingly with stocks down nearly 10 percent between the mid-September peak and recent lows.
U.S. gross domestic product (GDP) growth was revised up to 2.7 percent for the third-quarter. But details of the report shows consumers pulling back too:
* Consumer spending was revised down to just 1.4 percent from an earlier estimate of 2 percent.
* After adjusting for inflation, real consumer spending in the U.S. is up only 1.3 percent year-over-year.
* And as you can see in the chart below, that’s the slowest pace of consumption in almost three years and signals recession-like conditions.
My take: The U.S. economy continues to putter along at stall-speed. Current fourth quarter GDP forecasts are for growth of just 1.7 percent. And those estimates may prove too high.
Go Global for Growth!
Meanwhile, in global markets outside the U.S., GDP growth appears to be accelerating again — especially in emerging markets. According to the latest IMF forecasts …
* U.S. GDP will expand just 2.1 percent in 2013, while Europe will just barely crawl back from recession posting 0.2 percent GDP growth next year …
* Worldwide GDP growth however is poised to rebound to a 3.6 percent rate …
* Emerging markets should perform best of all with expected GDP growth of 5.6 percent in 2013 led by economies in emerging Asia!
The key takeaway: Countries outside the U.S. and Europe will be the primary drivers of any post fiscal-cliff rebound next year. Global growth will be almost entirely driven by emerging markets and international developed economies, primarily in Asia.
As this investment theme plays out in 2013, profit opportunities should be greatest for companies and industries with greater international sales, because they stand to benefit more than domestically oriented stocks and sectors.
Consequently, you might consider adjusting your asset allocation accordingly. The sectors I’m watching closely with the greatest potential include: Technology, materials, and energy. All three sectors garner more than 40 percent of total sales from overseas.
Technology in particular is a sector that gets a lot of business from fast growing Asian economies. One ETF to consider is the SPDR Select Sector Technology ETF (XLK), which has underperformed this year, but may be poised for a profitable turnaround in post-fiscal cliff 2013.
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