By John Wasik
CHICAGO Dec 31 At this point, most investors
are peering over the fiscal cliff and feeling like Jimmy Stewart
in the classic Hitchcock film "Vertigo." But if you look beyond
the precipice, there is some solid ground.
For one thing, the U.S. housing market will be better than
most people expect, which bodes well for patient investors
holding onto consumer-sector stocks. Most economists are not
predicting any startling jump in home sales or prices next year,
and they largely have not forecast how a housing rebound will
spill over into the wealth effect of increasing consumer
spending and job creation.
Home foreclosures in November hit their lowest rate in six
years, a trend that is likely to continue, according to
RealtyTrac, an online marketplace of foreclosure properties.
If the Obama administration can come up with a plan to stem
foreclosures or accelerate turnover of unoccupied properties,
that would reduce overall home inventories and boost sales and
Such a plan would also spur sales of appliances, vehicles
and other consumer durable and discretionary goods and services.
To make the most of this opportunity, consider the iShares Dow
Jones Consumer Services ETF or the Industrial Select
This is just one example of how an investor could play the
wild cards in the economic forecast for 2013. There are still
plenty of buying opportunities, even in the face of uncertainty.
Generally, most middle-of-the-road forecasts are calling for
sluggish U.S. growth this coming year. A widely followed survey
by the National Association of Business Economists shows
expectations for about 2 percent growth in U.S. gross domestic
product, which is roughly what they predicted for 2012.
Accompanying that growth is a slow resolution of the
residential housing downturn, increased consumer consumption and
an improving job market, which will result in an average 7.7
percent jobless rate, the survey shows. While other economists
are giving similarly uninspiring forecasts, there are some more
compelling things that could develop.
READ BETWEEN THE LINES
You have to get away from a lackluster U.S.-centric
perspective to understand that international stocks are still
going to reflect rising GDP in developing countries. According
to RBC Wealth Management's 2013 outlook, a real global growth
rate of 3.5 percent equates with stock returns of 5 percent to
While the U.S. Standard & Poor's 500
price-to-earnings ratio is near its long-term average, similar
measures in some European and Asian markets are well below
average, according to RBC. Growth will continue in China (8
percent), India (6 percent), Brazil (3.5 percent) and Indonesia
If international investors are largely finished with
retreating to bonds as safe havens during the prolonged euro
zone crisis, that would trigger a buying spree in stocks. In
that case, you would want to have exchange-traded funds such as
the Vanguard Total Stock Market ETF or the iShares Core
MSCI Total International Stock ETF.
There are still opportunities in bonds, though.
The general warning has been out there for years: Shorten
your bond-fund maturities because interest rates will eventually
rise and bonds will be sold off. That still holds, but you can
find higher yields through bank loans, emerging markets and
municipal bonds, Mike Gitlin, director of fixed income for T.
Rowe Price, said in a recent 2013 outlook.
Funds like the Fidelity Floating Rate High Income Fund
invest in floating-rate bank loans. The iShares JP
Morgan US Dollar Emerging Markets bond ETF holds an
index representing bonds from developing countries. And the SPDR
Nuveen Barclays Capital Muni Bond ETF invests in an
index of U.S. municipal bonds generally rated "AA" or better.
What would derail my wild cards? The usual worries about
European fiscal resolution, budget and debt-ceiling battles in
Washington, and growth in China. There also will be blips along
the way as market volatility continues unabated.
A key component of my wild-card strategy is investing in
sectors or regions when they are cheap and undesirable. If you
feel especially brave, you can buy big-company European Union
stocks through a fund like the Vanguard MSCI Europe ETF
Certainly long-term investors who are not retiring soon
should consider holding at least 40 percent of the stock portion
of their portfolios in non-U.S. shares.