“Que sera, sera, whatever will be, will be. The future’s not ours to see, que sera, sera.” No one knows what the New Year will bring and even as the markets have continued to move higher, so far at least, optimism is not the consensus sentiment. Investors remain anxious about the outcome of the euro zone crisis, weak economic growth, the presidential election year in the U.S., and worrisome reports of dangerous geopolitical conflicts dominating the news.

Questions For 2012
Most of last year’s concerns are still with us. Our perspective is that the near-term market outlook will be importantly determined by the outcome for three questions:

  • Will the Euro and the European Union survive the sovereign debt crisis?
  • Will the U.S. avoid slipping into recession? 
  • Will investors look beyond the bleak macroeconomic concerns and evaluate securities based on fundamental merits?

Market Volatility
In 2011 U.S. equity markets produced a lot of volatility and disappointing returns. After two years of recovery from bear market lows, prices of individual stocks became highly correlated and traded mostly off of macroeconomic and political headlines. During 2011 the S&P 500 index had intraday swings of 2% or more for 35 days, compared with 22 days in 2010, only 2 in 2006, and none in 2005. The total return for the S&P 500 was a meager 2.1%.

Extreme moves in stock prices reflected a “risk-on”, “risk-off” attitude of traders with price swings based on shifts in sentiment to headline news. Investors reacted to these concerns with a buying mania for bonds that brought U.S. Treasury, investment-grade corporate and municipal bond yields down to historic lows.

Asset Allocation
In the current economic and market environment, investors face challenging decisions about where to invest their funds to seek the best balance between risk and return.

Fixed Income
An investor who is concerned about volatility could buy some presumed safety and peace of mind by buying bonds, but in the current market that comes at a high price. The return is zero on cash reserves and less than 2.0% on 10-year Treasuries, and probably a negative return adjusted for likely inflation.



Investors who have the patience to take a long-term view based on an analysis of risk and potential return can live with short-term price volatility, whether based on macroeconomic headlines, unexpected fundamental reports, or shifts in investor sentiment. We believe that this patience will be rewarded with attractive future returns as the stocks of many companies, both domestic and global, are selling at relatively low valuations.

Multi-Asset Strategy
A variety of alternative investments may be appropriate for some investors, seeking a substitute for bonds with higher yields and/or strategies with a lower risk profile than equities. In any case, remaining committed to your long-term plans is essential in these turbulent times.


Note: We have gathered the information contained in this report from sources we believe reliable; however, we do not guarantee the accuracy or completeness of such information. You should not assume that any discussion or information contained in this market commentary serves as the receipt of or as a substitute for personalized investment advice from Whitnell & Co. No part of this publication may be reproduced in any form, or referred to in any other publication, without express written permission.