Out of recovery, analysts see growth
Financial analysts are optimistic for a more emphatic recovery in 2013 as strong corporate profits and stock market gains lead to more relaxed credit conditions and, economists hope, increased consumer spending.
The debt ceiling and sequester notwithstanding, experts surveyed by the Business Journal say a New Year’s Day tax deal in Congress and ongoing monetary actions by the Federal Reserve should provide certainty to business owners.
That in turn, they say, will add to the current housing recovery and could lead to increased investment by corporations and, to a lesser extent, small and mid-size businesses.
Below, we recount some of those conversations with area wealth management professionals and their expectations and recommendations for the coming year.
The big fix
Christopher M. Hyzy, managing director and chief investment officer of U.S. Trust — a wealth management unit of Bank of America Corp. geared toward high-net-worth individuals, said the “big fix for 2013 is less about stability and less about monetary policy being the catalyst — it’s more about monetary policy being a given.”
The question, Hyzy said, is what acts as a catalyst to allow investors in fixed income and cash to put their money to work in more profitable areas. Hyzy, who resides in Wilton, said the answer is three-fold.
“First, housing must continue to recover. Our belief is, going across the country, that there are excessive pockets where housing is not only back to where it was in 2005 but where it’s growing faster,” Hyzy said. “It has to continue to move forward in a positive fashion. …That should lead to better job growth than expected and a lower unemployment rate faster than expected. And housing has the greatest linkage to small business growth and small business growth has the greatest linkage to job growth.”
The second component, he said, is an increase in business capital expenditures. Hyzy said capital expenditures must increase at a rate that allows the U.S. economy to grow 2.5 percent or more this year.
“There are positive signs that the beginning of this year has been better than last year, so far, in that area,” Hyzy said.
The third component needed to help catalyze business growth is fiscal policy transparency, he said, so that companies “know the rules of the game.”
Fixed income poses risks
As the credit crisis took hold in 2008 and 2009, investors doubled down on cash and fixed income — a trend Hyzy and other say has remained the status quo.
Those surveyed by the Business Journal said that among the greatest risks to investors in 2013 is a lack of diversification and a misperception that fixed income can’t decline in value.
“The single greatest concern on the part of most investors should be rising yields and falling bond prices,” Hyzy said. “Many of those investors simply don’t know that fixed income can actually go down in price and ultimately cause losses.”
As equity markets continue to surge, Christopher P. Jordan, CEO and president of LEXCO Wealth Management Inc., said it is important to keep portfolios diverse.
“We’re telling people, as always, diversify and then separate your short, medium and long-term assets so you can correctly apply some risk metrics,” Jordan said. LEXCO, which is based in Tarrytown, N.Y., has an office in Greenwich.
Jordan said investors sitting on cash reserves have been hurt by the near-nonexistent rate of inflation.
“Stocks, on a relative basis … are fairly to slightly underpriced,” Jordan said. “When you compare that with the bond market, which is interest-rate sensitive and very highly overvalued at this time, stocks look pretty attractive.”
While economic indicators — from employment to the housing market — have shown positive gains, “the big ‘yeah, but’ is that the debt ceiling still looms heavily over us…and there’s the fiscal drag of higher taxes,” Jordan said.
At BlumShapiro, an accounting, tax and consulting firm with offices throughout New England, Mary Hoyt says businesses are still proceeding with caution when it comes to determining any long-term investments.
“We now know the tax brackets are going up for people who meet certain thresholds,” said Hoyt, a tax partner in BlumShapiro’s Westport and Shelton offices. “I have not yet seen a level of confidence where they (business owners) are jumping to make investments just because there’s been a permanent decision in the tax code.”
The New Year’s Day tax agreement in Congress “definitely allows business owners to do strategic long-range planning much more effectively now that we have some certainty, however, they’re still coming out of some very difficult times,” Hoyt said. “They’re still cautious because they have seen the markets go both ways.”
Hoyt said that could change as 2012 tax filings come in and businesses start to get a sense of how the federal tax code changes will affect them a year from now.
“Many people haven’t gotten their heads around yet what all the changes mean to them in dollars and cents, and I think that will evolve over the next couple months as taxes get done,” she said.