Mark Levy’s Economic Update Tuesday, December 3, 2013

 You have all certainly noticed US equity markets rising dramatically of late and this “lift” has been for the most part, enjoyable to watch. Today, U.S. and global equity markets are pulling back – the Dow 30 industrial average closed down 94 points this afternoon to 15,914. A correction at this point in the equity “Bull Market” would be welcome as some market observers are concerned we have gone up too far, too fast. “A pause that refreshes” is often the right prescription for stock market health.   Longer term, we remain optimistic on equities and cautious on bonds. As a reminder, when interest rates rise, bond values decline (especially long term government bonds).  LPL Research forecasts economic growth, as measured by real gross domestic product (GDP), to accelerate from the 2% pace of recent years to 3% in 2014. Finally, some acceleration in the economy is expected to emerge. If achieved, the 3% pace of GDP growth in 2014 would be the best performance for the U.S. economy since 2005, when the economy posted a 3.4% growth rate.  Due to the good returns of the last few years, we expect equity mutual funds and separately managed accounts to report capital gains this year. We do not have definitive numbers yet, but typically December is the month when gains are declared. Your 2013 1099 forms will be sent out February/March of 2014 by LPL Financial with the gain and loss information. Only taxable accounts need to be concerned about gains, retirement accounts are exempt from gain liability.  On an additional positive note, LPL Research says Global GDP growth is also likely to accelerate in 2014. Economists’ consensus forecast expect a pickup from about 3% in 2013 to 3.6% in 2014. LPL believes Europe will likely eke out a modest gain in GDP after emerging from a double dip recession and China’s growth rate is expected to stabilize in the coming year after slowing the last couple of years. Surprisingly, Japan will likely record its third consecutive year of GDP growth for the first time since the mid-2000s.  Jeffrey Kleintop, Chief Market Strategist for LPL Financial, believes earnings growth and a modest rise in the price-to-earnings (PE) ratio will fuel a continuation of the stock market rally into 2014. Volatility will always be a possibility along the way, and is likely to come from “growth scares”, when economic data may temporarily disappoint expectations on a path to better growth in 2014, rather than from the antics in Washington.  We wish you Happy Holidays and a Prosperous New Year and as always, do not hesitate to contact us with any investment questions you may have.  –  Mark    The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. * Stock investing involves risk including loss of principal. Economic forecasts set forth in this presentation may not develop as predicted. Past performance is no guarantee of future results.   Indexes are unmanaged and cannot be invested into directly.  Referenced material: Hays Advisory Market Comment dated 12/2/13, LPL Financial Economic Commentary and LPL Financial Weekly Commentary, both dated 12/3/13.