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Five Reasons for Investors to Give Thanks

Jason Stipp
Jeremy Glaser

Jason Stipp: I'm Jason Stipp for Morningstar, and welcome to The Friday Five.

Happy Thanksgiving to you. As you enjoy your leftovers today, we have five things that we are thankful for as investors--and yes, we did find five.

Here to offer the rundown is Morningstar markets editor Jeremy Glaser.

Jeremy, thanks for joining me.

Jeremy Glaser: Jason, glad to be here.

Stipp: What do you have for The Friday Five this week?

Glaser: We are going to talk about Europe, the United States [economy], housing, the market, and finally, the election.

Stipp: A lot of investors might be surprised to see Europe on this list of things we are thankful for, but things over there have quieted down in the last few months, which has given us a very much needed respite.

Glaser: Yes, it certainly has been significantly quieter than it was even over the summer, and … thanks can be given to Mario Draghi of the European Central Bank. I think he finally found a Band-Aid that was big enough to really stop the bleeding.

He said he was going to stand behind the euro, basically that no matter what he needed to do, he would do to make sure that the common currency stayed together. Now so far, he hasn't really had to act on that claim yet. Spain hasn't applied for its bailout. He hasn't been buying Spanish bonds. There could still be a potential flare-up in Greece. There are a lot of potential issues across Europe, but so far they haven't flared up yet. I think a lot of that is because people believe the ECB and believe that he was credible when he said, later this summer, that they really were going to defend it. I think this is definitely something we should be thankful for.

Could things still get worse? Yes. Are we still going to be talking about this for years to come? Absolutely. But things are quieter, and I think eliminating some of that near-term uncertainty is a huge win for investors.

Stipp: The fact that U.S. economic growth is on this list today probably says a little bit more about the rest of the world than it does about the U.S.

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Glaser: Yes, it absolutely does. 2% growth in the U.S. is not great. I think we can all see when we look at the employment numbers and when we look at--and talk to people about--how they feel about the recovery, it doesn't feel very robust, because it's not. 2% is still below trend growth.

But compared to Europe, which is still in deep recession, compared to the slowing in a lot of the emerging markets, the U.S. actually looks pretty good. 2% is not what we are going to want forever, but compared to seeing declining growth right now, I think a lot of investors are happy to take that.

Stipp: One of the things I think we can more wholeheartedly say we are thankful for in the U.S. economy here at home is the housing market. What are some of the drivers behind that and how much of a boost might that give us?

Glaser: Housing is really important. We've talked about this many times--[Morningstar director of economic analysis] Bob Johnson has talked about this--that it's going to be a big driver of the recovery as we look forward to the next couple of years.

There are a lot of jobs there. You have construction jobs, you have people who work in the banks who are writing these mortgages as these new homes get built; a lot of jobs get created there. You have the Fed really targeting that to try to make that happen.

And we're really seeing the housing market has hit the bottom. It's rebounding somewhat--not super, super rapidly--but rebounding, and it doesn't seem to be backtracking.

Just this week, we got existing home sales data that looked pretty good, that showed people are out there buying previously owned homes. They are paying a little bit more for them on average, and I think all of that points to really positive signs, and it's something that we can be looking forward to in the future: As housing improves, … it will improve the rest of the economy as well.

Stipp: Number four is a bit of a sleeper, but the U.S. market performance has actually been a lot better than sentiment would seem to indicate.

Glaser: It's the Rodney Dangerfield market; it doesn't get any respect.

Even after the recent pullback, we're still looking at around a 10% increase over the year, according to the [Morningstar] U.S. Market Index, which is a pretty broad-based index.

I think it shows that even though a lot of investors may feel like the market isn't doing very well, that their returns haven't been very good, but when you look at the numbers, it's actually been a pretty respectable year, and it comes on top of a number of years since the bottom that returns have looked pretty good.

And I think it just shows that even though the sentiment can be pretty negative, actual stock returns can look decent, particularly when you start looking at stocks that we thought were cheap and when you look at quality [stocks], those returns have looked even better. And it just shows that there can always be values in the market, no matter where you think valuation levels are or how you feel about stocks generally.

Stipp: One of the things that tends to upset the market is uncertainty. We got a big piece of uncertainty cleared up here in November. How thankful are you that the election is finally over?

Glaser: I think most people are pretty glad that this election is behind us. I think whatever side of the aisle you're on, I think that the uncertainty that was caused by what the balance of power would look like in Washington was good for no one.

Now that we know at least for the next two years what the balance of power will look like, and probably the next four years. Given some of the Senate seats that are up and what the house will probably look like in 2014, we have a sense of who the players are going to be and generally what their motives are going to be in terms of figuring out what the tax rates are going to be, figuring out what regulations are going to look like.

The fiscal cliff negotiations are still high-stakes. We could still fall over it. We could still run into big problems there. But I think now that we have those players set, there is a decent chance they're going to come up with some kind of solution. It might not be perfect--it might have all sorts of flaws--but at least it will be there, and people can stop worrying about what's going to happen and start planning for what they know [tax] rates are going to look like, and what they know regulations are going to look like, and that will certainly be a positive change.

Stipp: Jeremy, we're always thankful to hear your take on the markets on The Friday Five. Thanks for being here.

Glaser: You're welcome, Jason.

Stipp: For Morningstar, I'm Jason Stipp. Thanks for watching.