The 2013 market situation appears to be very challenging. At best, a political solution to the U.S. fiscal cliff will emerge, although lawmakers may bandage the situation and kick the problem down the road. Still, several scenarios would appear to have a higher degree of certainty for investors, including long-term dividend issues. With interest rates low, and the (current) Federal Reserve promising to keep them there, income-seeking investors will continue to enjoy few choices: Bank CD rates are minuscule and longer-term bonds, whose rates also are low, require that owners hold until maturity or face principal declines when rates start to inch up. Yields remain relatively high. While actual dividend payments set a record in 2012, companies still are paying out just 34% of their profits versus an historical rate of 52%. Even if no issue changes its dividend rate through 2013, next year's payment will be 6% higher than 2012.Taxes will remain the major issue. Some adjustment to the dividend tax rate will be made, with the potential for a 2013 modification being made retroactive. Regardless of the tax structure, even at the full 43.4% scheduled rate, dividends may be the only game in town for investors looking for current income. Expect some type of accelerated depreciation schedule to encourage companies to purchase new equipment and, potentially, hire workers. While congress will attempt to encourage companies to buy American, international trade agreements limit their ability. We expect some type of change from Congress, especially for smaller companies. S&P Dow Jones Indices also anticipates continuing declines in European sales that would put pressure on profits and reduce margins. Today, 46.1% of S&P 500 sales are foreign, with 11.1% coming from Europe."
S&P Dow Jones Indices Recaps 2012 Financial Market Performance; Identifies Headwinds That Could Impact Returns In 2013
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