GOLDEN VALLEY, Minn. -- Tuesday's more than 300 point gain in the Dow was welcomed by many investors, especially compared to the last six months in the market.
Investors have had a pretty shaky second half of the year with their stocks.
The annual Barron's forecast for next year, at least the first half of next year, doesn't exactly look the brightest for the market either.
But have no fear, Dan Ament, financial advisor for Morgan Stanley Smith Barney of Wayzata, visited KARE 11 Sunrise to explain the market forecast, and how you can best prepare for the new year.
- 12% Return?
The mean prediction of the 10 stock market strategists and investors surveyed by Barron's is that the S&P 500 will end 2012 at 1360 or 11.5% higher than Friday's close of 1220. Not always on the money ...their 1360 2012 year end prediction is around the same level as Barron's 2011 year-end prediction survey.
- Stronger second half in 2012
In general, the strategists believe that most of these gains will come in the second half of the year, and that Europe's response to its debt crisis will continue to dictate the market. While that seems like a big gain, those predictions are predicated on the outcome of several, crucial macro events, such as the survival of the Euro zone.
- Valuations are still attractive .... however ...
While current U.S stocks are cheap on a historical basis, the political environment within the US and European market woes will likely dominate the 2012 calendar. On one hand - Adam Parker, Morgan Stanley's U.S. equity strategist, thinks the market's P/E multiple could even drop in the next few years to as little as 10. He sees downside risk to Wall Street's earnings estimates, and says "you pay a lower multiple for that." On the other hand - U.S. stocks look cheap on a historical basis -- especially when compared to U.S. Treasuries, says Tobias Levkovich, Citibank's chief U.S. equity strategist. The spread between an 8% S&P 500 earnings yield -- that's the inverse of the P/E -- and the 2% Treasury yield is near levels that in the past preceded big rallies for equities.
- No recession ahead for U.S.
The majority of those polled by Barron's think U.S interest rates will remain low for a long time and even the most bearish of forecasters do not expect a recession in the US.
- Bottom line for investors?
It won't be dull.
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