In 2012, small-cap stocks were the second-best performing group, following the technology sector. The Russell 2000 was the top performer in December and has been since the end of the first quarter. How the small-caps fare this year will, again, depend on the global economy.
My stock analysis is that what happens in January will be an important indicator for the year as far as performance. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to the Stock Trader’s Almanac. In 2012, January was a strong month, so it was not a surprise to see the relatively good advance in stocks.
As we move into 2013, the focus will be on any remaining fiscal cliff fallout and the impact of the deal, along with the eurozone mess, the U.S. national debt, and jobs growth.
For 2013, my stock analysis is cautious to start the year, based on the high global risk.
The fact that the economy is triggering some jobs growth is encouraging. My analysis is that this will likely continue in 2013, although the unemployment rate is expected to remain relatively high at over seven percent.
My stock analysis tells me that we need to see leadership from such areas as the financial and technology sectors. The big banks were strong in 2012, but we also need to see technology take a leadership role.
It definitely will be a tricky year, given the global and domestic issues, along with suspect earnings and revenue growth to start the first quarter, which you can read about in “Looking Ahead: Economy Remains a Drag on Corporate America.”
Again, as I said at the start of 2012, if all goes well, my stock analysis indicates that the S&P 500 will test 1,500 this year, up about just four percent from the current levels.
How much the index rises will be dependent on the global and U.S. economies. The climate of low interest rates and monetary easing globally will help.
My stock analysis tells me that the top areas for aggressive growth continue to be technology and small-cap stocks. Areas in technology that look promising include the mobile, Internet, and wireless markets, based on my stock analysis.
I also continue to like the big banks, as their balance sheets strengthen and loans increase.
I also like cyclical stocks should the economy improve and consumer spending rallies.
If the risk intensifies, look to gold for safe-haven buying. I especially like the junior gold miners that I will discuss in an upcoming commentary.
Outside the U.S., I continue to favor Chinese stocks and the emerging markets.
While my stock analysis indicates that I’m concerned about the debt and growth situation in Europe, let’s not forget the $16.4 trillion in U.S. debt and the mounting U.S. deficit scenario.
All of the risk factors I discussed need to improve to give us any hope for another positive year in 2013, but I also expect trading to be cautious and similar to last year.