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Thanks to my friends at UBS and GS, I have had 80% more material than usual to review in order to determine my take on how the markets will finish in 2013. The success of any market guess is determined by analyzing the opportunities and the risks.
Fundamentally and technically a strong argument could be made for a 1700+ S&P 500 by years end. Again, and for the last four years we centered our homework on the S&P because the DOW's relevance is a bit questionable.
Recent numbers indicate huge buckets of money heading into the market now that we have put up a theater rope on the edge of the fiscal cliff and that has made many feel a little better. In the next few weeks if there is no adjustment to the debt ceiling, we could see how effective those theater ropes are at holding the investor audience from falling.
Historically, we are in the 45th month of a recovery with most recoveries of this magnitude lasting 59 months. We have seen steadily improving numbers in auto sales, home sales, building permits, home pricing, and the secret sauce, employment numbers. All of that bodes well for corporate revenue numbers and the lack of inflation tells, should protect margins.
All of that supports a S&P above 1,700.
There are a stack of risks to identify in going through this exercise. Unfortunately, it is a global economy we are investing in, so our homework must take place with that perspective in mind. Again, thanks to the amazing research teams at UBS and GS for the reams of reports published in the last few weeks.
They, the WSJ, and Barron's remind us of the risks ahead. Being successful in the markets is more about risk avoidance than profit realization.
Issues in the Eurozone are far from over. Fallout from the Italian election is a tough cup of tea leaves to read. France, known for its fabulous labor theater dramatics, could take us to a new level of labor disputes. (Imagine a strike against striking).
Do we yet know how deep a European recession will be?
What would an independent Catalonia mean to Spain and the Eurozone?
What would an independent Scotland mean to The UK? Yeah I know. Who cares? I am just demonstrating how well versed I am on global political affairs.
Was the bounce in China the soft landing or is there more 共發現 ahead. (Traditional Chinese for worry. You are really impressed now, huh.)
Then we must ask, are we really seeing a true recovery on housing, or will the bombastic pundits in DC fail to address the debt ceiling impacting sentiment and interest rates refloating the inventory of homes on the market.
Then we must keep an eye on battle of the global currencies. Will Yen devaluation cause Asian angst as it could be currency manipulation. (Hell, we all know it is, but the US has been doing it for four years-QEI, QEII, QEIII etc.) Then we have the Renminbi, which some say has the potential to be the world currency?
As a background to all of those issues is a plethora of geopolitical issues including but not limited to, China's new leadership, another Arab Spring?, Israel and Egypt or if you prefer Egypt and Israel, Pakistan, North Korea, the Philippines, and Venezuela. And those are the things we know about without contemplating natural disasters.
So whats to worry about. Believe it or not, I feel much of this has been factored into global equity and bond pricing. Why do I say that? As you know, people a lot smarter than I with much more research actually determine what you and I pay for a share of AAPL at any given moment.
Here are my guesses for year ending S&P and DOW prices. The S&P 500 will enjoy a 9.4% bump from today's close of 1,472 to end the year at 1,610. The closely watched but less important DOW will finish 2013 at 14,361, a 6.1 % hike from today's close of 13,534.
This will not be a smooth ride to these numbers. Look for a sizeable correction from some new highs in the weeks ahead, then a rebuild in the summer, only to correct again before building up to a year end crescendo. If that sounds familiar, it is. It is almost what we did this year.
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Since 12/31/2012
