Markets make a positive start to 2013

The shortened week did little to curb the enthusiastic response of the markets to news that the immediate dangers of the US fiscal cliff had been avoided. However, after the initial rally, realisation that the most difficult decisions on spending cuts have merely been deferred for two months did prompt markets to retreat slightly. US political uncertainty will continue to concern markets; the end of February will see more wrangling over spending, with Republicans in the House of Representatives again threatening to force the US to default.

Whilst the looming cliff had denied investors the fairly traditional year-end market rally, the end of the first week of 2013 provided some welcome relief. Wednesday provided the best day for US equities in more than a year and the S&P 500 Index ended the week up 4.4%, within touching distance of a post-financial crisis high.

Also in this week's bulletin...
  • In contrast to signs of rising confidence from its US counterpart, confirmation that the UK's dominant services sector had suffered its first contraction in two years increased fears that the economy was heading for an unprecedented triple-dip recession.
  • The 10-year gilt yield crept above 2% for the first time since last May and is seen by some as a tentative sign that the flight from equities might be going into reverse as investors draw encouragement from recent events.
  • Making the most of your annual ISA allowance and keeping an eye on the interest rates of your cash deposits are just two of the New Year resolutions that savers and investors should consider in the period leading up to the end of the tax year in April.

View this week's Market Bulletin (PDF), which contains thoughts and opinions of St. James's Place and our range of investment managers on the key issues affecting investors.

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