From Cliff to Ceiling

January 7, 2013


Now that a short-term resolution has been reached that addresses the much-touted fiscal cliff, investors have shifted focus toward the upcoming debate regarding the federal debt ceiling, a deadline that is expected to occur in late February or March.
-Wasif Latif, vice president, Equity Investments, USAA

  • With a short-term resolution to the fiscal cliff now in place, focus has shifted towards the debate on the federal debt ceiling. While difficult to forecast, the USAA team expects the debate over tax hikes and spending cuts to be contentious with heightened financial market volatility over the next several weeks.
  • The USAA portfolio managers advise investors to focus on long-term objectives, work with an advisor and diversify holdings. In the USAA diversified managed portfolios, they continue to favor foreign stocks over U.S. stocks and municipals, corporates and high yield over Treasuries. They also own some gold and mining stocks as hedge against long-term risk of rising inflation.
  • Despite the fiscal cliff negotiations, the USAA team still sees the U.S. economy operating in slow-growth mode, and they expect the recent deceleration in growth to continue because of the fiscal drag of increases on the majority of the population.
  • While the ISM Manufacturing Purchasing Managers Index, the ISM Non-Manufacturing index, total vehicle sales and employment report all noticed small gains, it shows the labor market is healing, but not quickly.

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