12-13-2013 12:45 PM
By Bernie Williams,
Chief Investment Officer, Investment Solutions
Will they or won’t they?
When the Federal Reserve’s Open Markets Committee meets in Washington on Tuesday and Wednesday, markets will be looking for an answer to that question: Will the Fed finally begin the long-awaited taper of its $85 billion monthly bond purchases, or will action be delayed until early 2014?
While the consensus calls for an announcement after the new year, public appearances this week by a trio of Fed regional presidents gave momentum to the idea that the taper would debut during the Dec. 17-18 meeting. Better-than-expected news regarding employment, housing and other economic data in recent months all point to a taper.
New numbers released this week support the economy’s improving trend line. November’s retail sales (which include only part of the important post-Thanksgiving weekend) were up a healthy 0.7% from the previous year. Producer prices slipped back slightly in November, indicating that the economy’s gains are not translating into higher near-term inflation.
A likely end to the partisan wrangling over federal government funding also stands to be a positive for markets. The U.S. House easily passed a budget measure that would avert the possibility of another government shutdown next month, and the Senate is also expected to approve. The budget is a mixed bag for the military. Smaller cuts are slated for defense spending in the current year, but working-age military retirees would see the cost-of-living increases to their pension payments lowered by 1 percent starting in late 2015.
Economic reports this week from overseas point to continued weakness in other developed markets. The eurozone’s industrial production in October saw its largest decline in more than a year, and the region is contending with joblessness at record highs and low consumer confidence. Meanwhile, Japan’s GDP growth slowed in the third quarter to an annualized 1.1% despite a massive government stimulus program to end years of stagnation.
Stocks took a bit of a tumble this week, which should not be much of a surprise given the recent extreme bullish sentiment in the markets. The Standard & Poor’s 500 index hit yet another all-time high on Monday before pulling back to end the week at 1775.3, down 1.65%. Yields on the 10-year Treasury bond finished at 2.87%, up 0.01%, while gold rallied 0.79% to close at $1,238.80.
For more insights on the markets, read our investment outlook for the third quarter.
USAA Investments Managed Portfolio Outlook
Our view of caution toward risk assets remains unchanged. We remain slightly overweight in bonds and cash in our diversified managed portfolios. For investors interested in income-oriented bond investments, the USAA Intermediate-Term Bond Fund, the USAA High Income Fund and the USAA Income Fund are examples. For investors interested in tax-free income, the USAA Tax Exempt Long-Term Fund, the USAA Tax Exempt Intermediate-Term Fund and the USAA Tax Exempt Short-Term Fund are examples.
We also have a small position in gold and precious-metals mining stocks, which we view as attractive as a long-term inflation hedge. For investors seeking exposure to precious-metals mining stocks, the USAA Precious Metals and Minerals Fund is an example. The USAA Real Return Fund also provides potential protection against the risks of long-term inflation.
Emerging markets represent another opportunity. Though they were hit especially hard recently, we believe that emerging markets remain attractive. They offer both an interesting long-term prospect for growth and compelling valuations. The USAA Emerging Markets Fund offers exposure to stocks in less-developed countries.
As always, we encourage investors to speak with one of our financial advisors, who can help determine which investment vehicles are best suited for you based on your individual goals, objectives, risk tolerance and time horizon.
This material is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing.
Consider the investment objectives, risks, charges and expenses of the USAA mutual funds carefully before investing. Contact us at 1-800-531-8910 for a prospectus containing this and other information about the funds from USAA Investment Management Company, Distributor. Read it carefully before investing.
Investing in securities products involves risk, including possible loss of principal.
Past performance is no guarantee of future results.
As interest rates rise, existing bond prices fall.
Non-investment grade securities are considered speculative and are subject to significant credit risk. They are sometimes referred to as junk bonds since they represent a greater risk of default than more creditworthy investment-grade securities.
Some income may be subject to state or local taxes or the federal alternative minimum tax.
Foreign investing is subject to additional risks, such as currency fluctuations, market illiquidity, and political instability. Emerging market countries are most volatile. Emerging market countries are less diverse and mature than other countries and tend to be politically less stable.
Precious metals and minerals is a volatile asset class and is subject to additional risks, such as currency fluctuation, market liquidity, political instability and increased price volatility. It may be more volatile than other asset classes that diversify across many industries and companies.
The S&P 500 Index is a well-known stock market index that includes common stocks of 500 companies from several industrial sectors representing a significant portion of the market value of all stocks publicly traded in the United States. Most of these stocks are listed on the New York Stock Exchange.
USAA or its affiliates do not provide tax advice. Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor.
High double digit returns are attributable, in part, to unusually favorable market conditions and may not be repeated or consistently achieved in the future.
Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License #0E36312), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.
Investments provided by USAA Investment Management Company and USAA Financial Advisors Inc., both registered broker dealers.
The Real Return Fund may be subject to stock market risk and is non-diversified which means that it may invest a greater percentage of its assets in a single issuer. Individual stocks will fluctuate in response to the activities of individual companies, general market, and economic conditions domestically and abroad. When redeemed or sold, may be worth more or less than the original cost.
Diversification does not guarantee a profit or prevent a loss.