Mark Levy’s Economic Update – January 4, 2012 Let’s start with tax reporting information. The new deadline for 2011 1099’s consolidated tax information is February 15. The IRS has extended this date from January 31st because of the challenges financial institutions had with the early date. In recent years corrected 1099’s became the norm, so the IRS extended the reporting date in an attempt to improve reporting accuracy. Now, on to the markets…. Basically, 2011 has turned out to be a flat year in terms of equity returns. The S&P 500 generated a total return of 1.32%. This implies a “ho, hum” year when it wasn’t that way at all. Volatility was significant at times and there were moments when “staying the course”, wasn’t easy to do. Earnings, for S&P 500 companies in 2011 grew a dramatic double-digit rate. Since World War II, there have been four years when the total return for the S&P 500 was roughly flat: 1953, 1960, 1994 and 2011. All three of these years that preceded 2011 were followed by strong gains in the following year, averaging 38%. Very much like now, economic expectations were low in these 3 examples prior to excellent returns. LPL Financial Research is calling for gains of 8-12% in 2012, preferring to remain cautious in its predictions. They see improvement in valuations, and mid-to-high single-digit earnings growth as the support for this performance. High valuations and now lower yields imply that 2012 will deliver lower returns for bond investors. LPL Financial believes that record low Treasury interest rates will prove unsustainable over the intermediate and longer-term due to their belief the United States economy will avoid recession and deflation is unlikely to occur. LPL Financial emphasizes bond holdings that will better withstand a modest rise in interest rates that they expect later in 2012. High yield bonds, investment grade corporate bonds and municipal bonds are their preferred fixed income holdings. The key report of this week is likely to be the December employment report, due out this Friday, January 6. Underlying improvement in the labor markets in recent months has helped to drive the number of Americans filing initial claims for unemployment issuance to three and a half year lows and has also probably helped boost consumer sentiment as well. The December employment report will provide a comprehensive look at the labor market for the month. That is all for today. We will be contacting you in the next few months to conduct portfolio reviews. Please feel free to contact us before then if you have any questions or concerns. – 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. LPL Financial Research dated 1/4/2012. Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful. High yield/junk bonds (grade BB or below) are not investment grade securities, and are subject to higher interest rate, credit, and liquidity risks than those graded BBB and above. They generally should be part of a diversified portfolio for sophisticated investors. The market value of corporate bonds will fluctuate, and if the bond is sold prior to maturity, the investor’s yield may differ from the advertised yield. Municipal bonds are subject to availability and change in price. They are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Interest income may be subject to the alternative minimum tax. Municipal bonds are federally tax-free but other state and local taxes may apply.