Business, Bonds, and Buildings
One of the oldest debates in investing is to what degree the stock market is a gauge of economic health. In our Outlook 2012, we presented three possible scenarios for this year, the least likely being strong economic growth with Emerging Markets and U.S. Growth Sectors leading the way. At the time, we assigned that outcome only a 10% probability. After the first three months of the year, Emerging Markets was the leading asset class, returning 14.10% for the first quarter. The S&P 500 was up 12.60%, bolstered by growth oriented sectors like technology and financial services.
Such strong markets certainly make our job easier, but it has also left us scratching our heads. Is the U.S. economy really that strong? Can Emerging Markets continue to outperform with China looking to temper growth? Only with a clear understanding of what has driven markets can we hope to foresee and manage the risk in our portfolios.