We're less than a week away from a key milestone. The first half
of 2011 will come to a close and investors will look ahead for what
the second half of the year has in store.
The S&P 500 began the year at 1,260, rose roughly 110 points
(or 9%) by early May and has since given back much of the gains.
Looked at another way, the S&P 500 has risen roughly 3% this
year, which is good for a 6% annualized gain. This is not
especially impressive -- but it could have been worse. With all the
global headwinds in place, investors could just as easily have been
looking at major losses in the first half of 2011.
One thing's for sure: the past will not be prologue. More than
likely, the market is going to finally respond to some of the
looming crises and turn down ["
5 Economic Crises that Could Derail Your
"]. Or these issues may recede in importance, kicking off the next
leg of a powerful
that began in March 2009 and lasted for more than two years. [
"5 Reasons to be Optimistic about the Stock
Another boring 3% gain for the back half of the year seems to be
the least likely scenario. Here are five potential wildcards that
could affect the market before the glittering ball again drops in
New York's Times Square. (As with any bold predictions, take them
with a large grain of salt.)
#1: The China streak ends.
It's been a remarkable two decades for China. The country's
has grown at least 7.6% every year since 1991.
Yet it's increasingly clear the country's policy makers are
playing a very tricky hand, looking to slowly let its
strengthen, cool down trade tensions and maintain employment levels
that will avoid serious social unrest. [See: "
5 Landmines for Chinese Stocks
It may be
or a fast-weakening bank sector that finally forces the Chinese
economy into a sudden slowdown that spooks global stock markets. A
massive amount of loans were doled out in recent years to encourage
housing construction, high-speed rail and other infrastructure
investments. If high prices cause a significant slowdown in any
major sector, then watch out...
Later this year, Chinese banks finally acknowledge very weak loan
portfolios, leading to major
write-downs and a liquidity crisis. Investors around the globe come
to fear that a weaker Chinese economy will pressure other
#2: A major technology/contentmerger
Apple (Nasdaq: AAPL)
juggernaut continues, a wide range of consumer-focused hardware and
media firms come to fear that the company's rising scale will
create perpetual cost advantages, leaving Apple's competitors to
fight over the scraps. This fear forces
Sony (NYSE: SNE)
Nokia (NYSE: NOK)
Hewlett-Packard (NYSE: HPQ)
Motion (Nasdaq: RIMM)
Microsoft (Nasdaq: MSFT)
and others to seriously consider a
A major deal happens -- which investors will greet with enthusiasm
at first, as hopes rise of catching "the next Apple" are cited --
but the hoped-for synergies will fail to materialize.
#3: The cash migration
As part of a broader tax agreement, the Obama administration will
relent and allow major corporations to repatriate cash from
overseas at a 10% tax rate (twice the rate a similar amnesty
offered in the last presidential administration). The large influx
of cash back to the United States strengthens the dollar and kicks
off an even deeper wave of stock buybacks. [See: "
These 3 Companies are Buying Back BILLIONS of their
Companies also seek to use much of that cash for acquisitions that
associated with stock-for-stock purchases, and are instead
immediately accretive to
The buybacks and deal-making help the market start to rally late in
the year, which will set the stage for stock market gains of 10% to
15% in 2012 as well.
#4: Defense loses big
Defense stocks such as
Lockheed Martin (NYSE: LMT)
Northrup Grumman (
, which continue to trade near 52-week highs, will be among the
biggest losers in the S&P 500 in the second half of the year,
as incoming Defense Secretary Leon Panetta lays out spending cuts
far deeper that many expect.
The moves will have a degree of bipartisan support from
hawks on the right and foreign policy doves on the left who would
rather see defense get cut over other social programs. The defense
industry begins a period of cyclical downturn, which ends up being
deeper and lasting longer than many had originally thought.
#5: Tourists flock to the United States
Efforts to streamline the cumbersome tourist visa process initiates
in visits and spending by foreigners later this year, boosting
leisure stocks such as
, lodging stocks such as
Marriott International (NYSE: MAR)
and globally-exposed air carriers such as
United Continental (NYSE: UAL)
. Hotel room prices in popular tourist destinations such as New
York City climb to new heights.
The trend continues into 2012, making tourism (along with
agriculture) a key driver behind a gradually shrinking trade
deficit and a particularly bright
in the stock market.
Action to Take -->
These five events are worth monitoring in the coming months.
They'll either help move the market up onto a higher plane or blunt
some of the gains posted in the past two years. Be ready to jump on
investing plays that will either help youprofit or protect your
assets when these events begin to take shape.
More than likely, it will be the "surprises" we don't see coming
that will have a meaningful impact on the market. Put on your seat
belts: the ride may get bumpy.
-- David Sterman
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.