“But now the days grow short … I’m in the autumn of the year. And now I think of my life as vintage wine from fine old kegs … from the brim to the dregs. And it poured sweet and clear … It was a very good year.” — “It Was A Very Good Year” by Frank Sinatra
It’s been a good year for equities. But it’s also been a complicated year, one which called for the consideration of a tactical asset allocation strategy. Tactical asset allocation means active asset management, rather than “buy and hold.” It can also mean placing more weight on market sectors that are expected to outperform a market index, given the consideration of certain economic factors.
The year began with the debt ceiling debate. Not the recent one, but the one that flared last December. The S&P 500 suffered an 18 percent decline during the most contentious days of the first debt ceiling debacle in 2011.
The sequester ensued in early spring. When Congress voted recently to end the government shutdown and avoid debt default, the cuts that began on March 1 were extended through mid-January of 2014. In a state like Florida, where so many government and private jobs and contracts are connected to the defense budget, the extension of the sequester cuts has ominous economic overtones.
“The Bipartisan Policy Center suggested that if the cuts continue, the economic impact on the defense industry will be double in 2014 what it was in 2013,” writes Jennifer Liberto in CNN Money.com. “The full brunt of the cuts hasn’t hit, and if we go down the sequester path for too long, we won’t be able to reverse the devastating impacts.”
So as we greet the New Year, we will suffer another possible government shutdown debate and possibly another extension of the Sequester Act.
With the sequester in full swing in mid-June, Chairman Bernanke floated the idea of scaling back on quantitative easing within the next six months. Domestic markets plummeted for 48 hours, taking global markets with them. Within a few days, Bernanke backpedalled some, and markets returned to “normal”.
Around Halloween we faced the harrowing prospect that the U.S. would default on its debts and throw domestic and global markets into a terrible tailspin. Our government was shut down for over two weeks during this recent debt ceiling debate. And investors were backed into a corner, forced to decide if their holdings were safe, or if they needed to take action. At the least, many investors reallocated, emphasizing downside protection against potential market meltdown.
Somehow, markets avoided the historical, major October downturns that have plagued investors. So ultimately, to date, it has been a good year for equities, just not an easy one.
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, chartered financial consultant and accredited investment fiduciary, is the founder of Arbor Wealth Management, LLC, (850-608-6121~www.arborwealth.net), a fee-only registered investment advisory firm located near Sandestin.