Thankfully, this week’s inaugural patriotic pageantry gave us a brief respite from Washington’s seemingly endless negativity. Following the two-month, post-election televised soap-opera, the 11th hour (perhaps 13th hour?) agreement between the Administration and Congress left most participants dissatisfied and the rest of us at their mercy in future negotiations on spending cuts and the debt ceiling (again?).

Most importantly, the agreement allayed the full force of the scheduled tax hikes and spending cuts. As details of the bill are now well-known and acutely analyzed, allow me to reflect on economic and financial market implications:

• Initial equity market reaction was positive, with the DOW up 300 points on Jan. 2.
• However, lingering uncertainty over the pending debt ceiling and spending cut debates will increase equity market volatility (so what’s new?).
• Personal consumption and capital spending should remain weak on reduced take-home pay, increased taxes for upper-income households and planning uncertainty for employers.
• The current tepid rate of economic growth holds little expectation for near-term improvement.
• Failure on the debt ceiling and spending cuts resolution could lead to another credit down-grade for US debt.
• However, investment opportunities always present themselves; perhaps for 2013:
  • US large cap equity, global exposure
  • Emerging markets and non-Europe developed
  • Income stocks (rates did go up a bit, but shouldn’t have a significant impact)
  • US Treasury yields should remain low, but fixed income opportunities in municipals (quality), high yield corporate, bank loan products and emerging market debt

Best wishes to all for a bright 2013! The financial markets will surely keep us entertained.