Written by Dave Young, President & Founder of Paragon Wealth Management
2012 continued the volatility that’s characterized markets since the global financial crisis, which will be marking its fifth anniversary in
September.  This year’s market moves were driven by three primary issues, Europe, the Middle East, and U.S. Politics.

We had a back and forth flow of good and bad news all year out of Europe.  Positive indications for Europe’s economy in the first quarter led to the strongest start for markets in recent memory.  These gains were promptly given back as concerns rose in the second quarter. Markets then rallied in the second half of the year when the European Central Bank announced that it would provide liquidity to governments and financial institutions – to the point that for 2012 as a whole, Europe’s stock market actually outperformed the U.S.

Middle East problems added to the mix this year.  This time it was Syria, Libya, Egypt, Israel and Iran that kept things stirred up.
Problems there always add an element of fear to investors in the U.S.

Our politicians provided a lot of political theater due to the election
year.  Markets rallied from June through October and then sold off into the election. After a short post election sell off, the markets surprised a lot of nervous investors and rallied through December.

The final act of the year was the drama surrounding the “fiscal
cliff”.   According to the press the fiscal cliff was the “Big Scary” issue that was going to sink the stock market.  Instead, our politicians
came through an hour before year end and voted on a 150 page bill they had three minutes to read.  As usual, it doesn’t cut spending, doesn’t significantly raise revenue and kicks the can down the road another few months.  The more things change the more they remain the same.

Overall the year was very volatile and very choppy.  The surprise this year was that in the face of all of the negative news most markets moved higher.

The Outlook for 2013

In the short term, through 2014, there are a lot of reasons to be bullish on stocks.  The US housing market has hit bottom and should be a positive force in 2013.

Growth in the middle class in emerging markets will continue to provide opportunities for investors and for companies selling into those markets.  Huge new oil discoveries should put a cap on the price of oil, which is always a boost for the economy.  Stock valuations are still favorable.  Low interest rates that hurt bonds are very good for stocks.

Over the long term, I have some serious concerns.  The biggest obstacle is going to be the debt that our politicians continue to grow.
We are 16+ Trillion in debt and going further into debt every day.
Forty two cents of every dollar that the federal government spends is still borrowed from our kid’s and grandkid’s future. Based on current policy, that 16 Trillion dollar debt isn’t going to magically disappear.  At sometime in the future it will have to be addressed.  If it isn’t then we will experience a real cliff.  That is the one that we will be watching out for.

Investing is difficult.  It rewards those who have the discipline to stick with their long-term strategy during challenging times. It punishes those who jump in and out and are always chasing what worked most recently.

Always focus on what you can control. That includes managing your risk by making sure your risk tolerance is set properly.  Following a disciplined, systematic process that has a long term track record.  Stay focused on your strategy and let the long-term results take care of themselves.

We appreciate the opportunity to be your financial advisor.  Please contact us if you have any questions or concerns.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.