This was among the conclusions of a panel discussion hosted Prudential Financial, Newark, N.J. (NYSE: PRU), held in New York City on January 5. The 2012 Global Economic and Retirement Outlook briefing was delivered by a 5-person team of Prudential market experts.
Edward Keon, managing director and portfolio manager of Quantitative Management Associates, said that 2012 “could look a lot better than 2011.” But the cautious optimism assumes, he added, that issues troubling the global economy, among them the continuing European sovereign debt crisis and a nascent real estate bubble in China, don’t check growth in the U.S. and overseas.
A 2012 outlook report issued by Quantitative Management Associates and recapped by Keon during the briefing forecasts U.S. equity returns in the “high single digits,” approximating the historical average. Keon said expects comparable returns as well for European equities.
Keon added the forecast for equities does not hinge on “heroic assumptions” as to company performance and valuation increases, but rather maintenance of the positive earnings business enjoyed in recent quarters.
Keon cautioned, however, that equity prices could experience a “sharp drop” during the year ahead. Market dips notwithstanding, he added, stocks should outperform bonds during the year ahead. Bonds would only yield higher returns than stocks—as happened in 2011—if the global economy were to continue to worsen.
Rising treasury prices fueled increased returns among fixed income products in 2011, though the Prudential panelists noted that certain sectors (such as corporate and emerging market bonds) underperformed U.S. Treasuries on a relative basis.
Citing the continuing fragility of the global economy, the European sovereign debt crisis and “geopolitical risks”—among them unstable political situations in North Korea and Iran—the panelists agreed that market volatility will remain high in 2012.
But the Prudential team expects U.S. recovery will continue in 2012, supported in part by a Federal reserve policy that will keep interest rates low, including yields on U.S. Treasuries.
Quincy Krosby a chief market strategist for Prudential Annuities said the expected monetary policy, which she dubbed “quantitative easing three,” will be guided by the Federal Reserve’s desire to counteract continuing weakness in the housing market and a potential slow in hiring.
Low Treasury yields, the panelists agreed, will spur investors to look for higher payouts in non-Treasury fixed income assets.
“Despite the 2011 bull market in U.S. Treasuries, we believe the there is still value to be found in fixed income,” said Michael Lillard, chief investment officer of Prudential Fixed Income. “While markets remain volatile, spread sectors, such as corporate bonds, structured product and emerging markets are likely to outperform in 2012.”
In respect to corporate bonds, Lillard added, the optimistic forecast comes on the heels of positive, albeit volatile returns in 2011. Contributing to that volatility, according to “Prudential Fixed Income, 1st Quarter 2012 Outlook,” a report issued to reporters at the media briefing, were continuing investors concerns about the European debt crisis, U.S. bank exposure to European debt, and the prospect of a European economic downturn.
Harry Dalessio, senior vice president for strategic relationships at Prudential Retirement, said the likely environment of slow growth, low inflation, low interest rates and volatile financial markets will continue to challenge investors in their pursuit of retirement goals.
“Contributions to defined contribution retirement plans are lower than pre-recession levels, and the number of people taking withdrawals are near record highs. “Therefore, 2012 is also likely to be a period where new approaches and solutions to help will be needed more than ever.” (source http://www.news.prudential.com/ ) For the latest updates on the stock market, visit Stock Market Today For the latest updates PRESS CTR + D or visit Stock Market news Today
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