Financial Services: Plenty of uncertainty ahead
It’s been a strong year for stocks, and with the election over and the economy slowly improving, there could be more good news for investors ahead.
But markets hate uncertainty, and there will still be plenty of it in 2013. Even if Congress and President Obama reach some agreement to avoid the fiscal cliff, there will more tax and spending issues to deal with in the new year. Early in 2013, Washington must contend with another big, divisive issue: whether to raise the nation’s debt ceiling and allow more borrowing. If that can’t be resolved quickly, it could put rating of the United States at risk and rattle global markets.
Banks and insurers are hoping the economy grows at a faster pace in 2013. The sluggish recovery has reduced demand for loans, insurance, and other financial products while ultra-low interest rates have reduced the money they earn on Treasury bonds and other safe investments. These factors have weighed on profits, prompting companies to cut jobs and streamline their operations. More job cut announcements are likely next year.
The industry is also waiting for details of the Dodd-Frank financial overhaul to be determined and applied by regulators. Critics complain that the rules are being watered down, and worry that retiring US Representative Barney Frank, the Democrat from Newton, won’t be there to champion the reforms.
That may seem good for industry players, who complain that new regulations will be costly. On the other hand, a failure to achieve more transparency and better oversight could lead to new problems in the financial system. Everyone agrees that that is the last thing the sector, or the economy, needs. - Beth Healy, Todd Wallack