My Market View: A Risky Start to 2012
Wednesday, January 4th, 2012
By George Leong, B.Comm. for Profit Confidential
Happy New Year!
In 2011, small-cap stocks lagged blue-chips and large-cap stocks following a strong 2010. In my market view, the big difference in 2011 was the uneasiness of the economic renewal in the U.S. and global economies. And, despite a positive January 2011, stocks largely fell last year.
The general market view is that what happens in January is an important indicator for the year as far as performance goes. Historical records indicate that stocks have increased an average of 1.6% in January since 1969, according to Stock Trader’s Almanac.
I was off last year as far as my forecast and market view, as I underestimated the weakness of the eurozone debt and the inability of domestic jobs and housing market to turn around.
For 2012, my market view is cautious to start the year based on the high global risk.
The fact that the economy is expanding in spite of a lack of strong jobs growth is encouraging. We are seeing what economists call a “jobless recovery.” And my market view is that this will likely continue in 2012, as the unemployment rate is expected to remain high at over eight percent, despite the extended tax cuts to drive consumer spending and economic renewal.
This is also an election year, so there will be haggling as far as policies go, as both parties are aiming to set themselves up for the election. As such, many pundits are expecting to see political gridlock to start the year and this will likely impact President Obama.
My market view is that we need to see leadership from such areas as the banks and technology. However, there was recent evidence of slowing from large-cap technology companies.
It definitely will be a tricky year, albeit Wall Street is again estimating that stocks will advance over 10% in 2012. I’m not sure, but if the situation in Europe improves and China does not have a hard landing, then achieving a gain of 10% is reasonable…and the gain would actually likely be higher.
Again as I said at the start of 2011, if all goes well, my market view is that the S&P 500 could test 1,400 this year. How much the index rises will be dependent on the global and U.S. economies. My top areas for aggressive growth continue to be technology and small-cap stocks. Areas in technology that look promising include Internet and wireless.
I also like the big banks as the balance sheets strengthen and loans increase.
Gold and silver look good, especially the junior gold miners.
Outside the U.S., I continue to favor Chinese stocks.
While my market view is concerned with is the debt and growth situation in Europe, don’t forget the $15.0 trillion in U.S. debt and mounting U.S. deficit scenario domestically.
And then there are the high unemployment rate and declining wealth from falling home prices driven by home foreclosures and short sales. These factors need to improve to give us any hope for a better 2012; otherwise, things could play out similarly to how they did last year.
Read my view on the dire situation in Europe that needs to be remedied in European Union: Resolution Up in the Air Means Continued Risk.
Next Post: What’s in Store for Gold in 2012?Previous Post: Stock Market: The Good News for 2012
Tags: big banks, china, chinese stocks, Europe, eurozone, gold silver, home foreclosures, home prices, housing market, junior gold miners, large-cap stocks, market view, S&P 500, small-cap stocks, U.S. debt, U.S. Deficit, unemployment rate
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
