Thus far in 2012, investors have been getting a real sense of
deja vu. Just as was the case a year ago, the economic data have
been increasingly bright, while the Federal Reserve's programs have
been providing liquidity to the
. This helped the S&P 500 rise a solid 12% in the first quarter
of 2012, mimicking impressive early returns in 2011. Yet as the
chart below shows, the rest of 2011 wasn't quite so kind to the
Economic data started to appear less robust as the year wore on,
and investors grew concerned that the United States may slip back
Whether 2012 turns out to run its course on a brighter note will
depend on a range of factors, some of which I touched on in
December 2010. Back then I identified
10 key factors
that could affect stocks and the U.S.
in 2011 [part 2 of that article is
]. Some of these bold predictions have already come to pass and
some still may.
Here's a fresh update on my outlook...
What's coming true
Jobless claims trend well lower --
States stop the bleeding --
The risk of a major state default no longer appears likely. About
gross domestic product (
growth this year should help partially repair state budget gaps.
Individual investors re-embrace equities --
Monthly trading data at online brokerages has been firming, though
are not yet seeing sharp inflows.
Oil prices start to move toward the $100 mark --
Latin American stock markets post a fresh surge --
Too soon to tell
Health care reform starts to take effect.
Some aspects of the health care changes -- such as mandatory
coverage of mammograms and mandatory insured doctor check-ups --
have gone into effect. The rest of the reform plans hinge on a
pending Supreme Court challenge.
to life in the fourth quarter.
Inventories of unsold homes are falling, while home-builder
confidence is now near multi-year highs. Still, Merrill Lynch now
cites the first quarter of 2013 as the turning point for the
Not this year
Airline stocks take off.
The faster-than-expected move to $100 oil (prediction 8) has
blunted momentum for airline stocks.
Venture capitalists get desperate.
market has re-opened in a big way, rescuing VCs as they unload
holdings on the general public and not through the
and acquisitions route.
Britain's austerity push gets watered down.
Prime Minister David Cameron has held firm on a range of budget
cuts that will soon go into effect. A major backlash is still quite
possible for 2013.
This time is different
The odds of a major slump -- as we saw in the summer of 2011 -- are
quite unlikely, and the outlook for 2012 is surely brighter. That's
because employment trends are so much better. A year ago, few
imagined we'd be speaking of consistent employment gains of more
than 200,000 per month. If this figure is exceeded this Friday,
April 6, when new employment results will be announced, then it
will be the first four-month string of 200,000-plus jobs created in
more than five years.
Rising employment tends to feed on itself, because companies start
to make longer-term growth plans once concerns of fresh economic
weakness have receded. The U.S. economy could well show a bit of a
slowdown in coming months, but that is unlikely to materially
affect employment trends.
And although stocks took a big hit this week as it became apparent
that Fed Chairman Ben Bernanke is unlikely to provide further
stimulus to the economy, investors should really be pleased.
is tacitly signaling that the economy is no longer quite so sickly,
and the animal spirits of the economy can now do the lifting that
the Fed had been doing.
The updated playbook
provides a fresh opportunity tospot emerging financial and economic
as I noted here
You already know what specific stocks I find appealing if you've
been receiving updates on my
$100,000 Real-Money Portfolio
. Yet they are simply emblematic of the broader themes in place,
and you can plug a range of stocks into your portfolio with similar
[block:block=16]These themes include:
• A steadily improving backdrop for consumer spending, as can be
seen in recent monthly auto sales figures.
• The changing technology landscape that responds to needs for
greater energy efficiency and environmental sensitivity (with my
Cree Inc. (Nasdaq: CREE)
Echelon (Nasdaq: ELON)
Calgon Carbon (
• A slowly improving banking sector that is trading up from its
below-book valuations now and should see rising profits and
dividends in 2013.
• A relative emphasis on U.S.-focused companies as U.S.
growth looks set to stay well above European growth rates.
Risks to Consider:
We may be underestimating the problems in Europe. There's still
a chance that Europe's weakest economies hit the skids as austerity
programs create a cycle of deeper recessions. If so, then U.S.
stocks would be headed for a swoon like we saw last summer.
Action to Take -->
A brightening macro-economic backdrop has helped stocks get off to
a great start this year, benefiting virtually every portfolio. Yet
we're shifting into a stock picker's market, where specific stock
selection should benefit investors just as much -- if not more --
than the macro trends. If history is any guide, then this is a good
time to build up cash reserves by taking some profits, so you can
step in for bargain hunting in case the market pulls back.
-- David Sterman
David Sterman does not personally hold positions in any
securities mentioned in this article. StreetAuthority LLC owns
shares of CCC, ELON, CREE in one or more if its "real money"