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The stock market, as measured by the S&P 500 Index, had a very good year in 2012, finishing with a total return of 16%. An improving housing market, continued new job creation, improving consumer confidence, and strong corporate earnings combined to fuel the market gains. The bond market experienced an average year as interest rates remained largely unchanged throughout the year.

 In addition to improving economic data, we also saw some improvement in a few areas of concern that we talked about in our year end letter of a year ago. The problems in Europe, while still there, have at least stopped getting worse. Fears of a European Union collapse have calmed and these problems have stopped making daily headlines. As the U.S. housing market has improved, we have also seen an improvement in the mortgage problems we have experienced for the past four years. While many homeowners are still under water on their mortgages, that number is much smaller than at this time last year.

Now that the Presidential election is behind us and the dreaded Fiscal Cliff has moved off the front page, everyone’s attention has now shifted to the annual question of “What will the markets do this year?” This letter marks our sixteenth year ahead preview (Fifteen if you don’t count the first one, written when we were less than two months old and were still finding our footing). In looking ahead to 2013, we see a stock market that is not cheap relative to earnings, but is not expensive either. If corporations are able to continue growing their earnings, stock prices should continue to rise. If we see the economy begin to slow and earnings drop, stock prices will likely fall. Most recent economic data looks good, so we are cautiously optimistic about stocks. With interest rates at record low levels, bonds are at heightened risks as any rate increases will cause a selloff in the bond market. At this point, however, we do not anticipate seeing rates move dramatically higher.

We are in the process of updating our website, which should be complete in the next few weeks. Please stop by and take a look and let us know what you think. You can find us at wabashcapital.com. We have also created a Twitter feed, which you can also find at our website. Follow us on Twitter and you will receive our investment thoughts on a regular basis.

As always, please feel free to contact us if we can do anything for you. Also remember that you can request an updated copy of our Form ADV that contains information about our company.

About Wabash Capital

Wabash Capital is an employee-owned registered investment advisor based in Terre Haute, Indiana, providing investment advice and professional portfolio management to individuals, corporations, banks, trusts, retirement plans and endowments. To learn more about our business, please visit www.wabashcapital.com.