We avoided going over the “fiscal cliff,” but numerous fiscal debates still lay ahead, and risks to the economy in 2013 could be many.
As investors, should we worry about upcoming political action or will legislators kick the can down the road? In the short run, we should worry a bit, but in the long run, not as much.
We can expect a strong debate over spending and continuing borrowing policies in the next several months, with ongoing discussion of spending cuts and the debt-ceiling increase. Those challenges will continue to weigh on stock prices until Congress takes decisive action.
Three factors should influence investors’ course of action: interest rates, inflation and corporate profits.
The Federal Reserve has pledged to keep the Fed funds rate low until the unemployment rate falls below 6.5 percent. Several government forecasts predict a 2 percent inflation rate in 2013.
However, the main criterion determining whether to buy or sell is corporate profits, and the Blue Chip survey calls for 4.4 percent growth in total U.S. corporate profits in 2013.
Two Town Crier “50” stocks are in the news.
• LinkedIn Corp. (LNKD; $117.47) is among the social media stocks that showed a nice increase last week. When the professional network service announced that its membership rolls now exceed 200 million, the stock began to rise. With a boost in international membership, the company doubled its user base in less than two years.
Most of LinkedIn’s revenue derives from recurring subscriptions. Many employers use LinkedIn to recruit employees and access information on their work histories.
• Facebook Inc. (FB; $31.41) has more than a billion users, making it the largest social network, but with its up-and-down history, analysts rate the stock primarily as a Hold. After a miserable start, Facebook now looks like a stock deserving of a small investment. With an initial public offering at $38, dropping to a low of $17.55, the stock posted gains of more than 50 percent in the last three months.
Watch for news of the company’s mystery press conference, scheduled Tuesday, after the Town Crier’s press deadline.