In this latest installment of our quarterly report, my colleagues and I share some observations on the market’s behavior in 2011, offer our outlook for the economy and market in 2012, and discuss three of the securities we are currently buying: Apple (AAPL), General Dynamics (GD), and Lowe’s (LOW).
Click here to go to the full report on our website. Following are a few highlights:
- The S&P 500 index delivered a 2.1% return in 2011 after surging 11.8% in the fourth quarter. The year felt much worse than it actually was due to significant economic concerns and because…
- …Volatility and correlation among stocks were much higher than normal. As a result, even stocks of companies with no change in their fundamental business prospects were whipsawed with the broader market.
- The U.S. outperformed other major markets, which suffered due to sovereign debt problems in Europe, slowing growth in emerging markets, and falling commodities prices.
- The issues in Europe remain the primary threat to the global economy and financial system. Europe will likely enter a recession, but we do not expect broad recession elsewhere.
- Emerging markets should rebound this year as the trend of more rapid economic growth there than in the developed world continues.
- We expect the U.S. economy to continue its slow recovery, with recent reports indicating an acceleration of growth in manufacturing, rising consumer spending, and other positive trends.
- Corporate earnings remain strong, and we expect further increases in 2012.
- We continue to prefer shares of high quality, well capitalized, multinational companies that pay dividends and trade at significant discounts to intrinsic value. With the S&P 500 trading at only 12x forward earnings, plenty of stocks with these traits are available.
- We also continue to favor stocks over bonds. The 1.9% yield on the 10-year Treasury is lower than inflation, resulting in a negative real return. When interest rates rise, long-term Treasurys will get crushed.
As always, feel free to contact us if you have any questions or comments. For more information, visit our website.
Jordan Smyth and the Edgemoor Investment Advisors Team
