The investment’s firm bottom line is that nothing will change much this year when compared to 2011… great report, highlights below:
“We see the S&P 500 in 2012 at 1,400 and 1,600 by 2013/14/15, with “old” commodity equities and small cap experiencing a final legacy burst of strength versus the S&P in 1Q/2Q12. By mid-2012 we see stocks sinking and expect QE3 as fuel cost and deflation issues resurge, presaging a strong finish for the year. Beyond 1H12, we see large cap growth leading the S&P 500 to ~2014/15, with greater Financial stock participation due to U.S. GDP traction, a consensus that deflation has been averted, Fed laxity as the offset to fiscal tightening, and growing foreign portfolio inflows to the U.S. as the EM & Europe painfully rebalance.
In short, we believe the “shape” of the S&P 500 in 2012 will look much like 2011, but with a stronger finish and less emphasis on safety and yield. We expect 1H12 optimism regarding slow-but-steady GDP traction, a eurozone 1H12 “deal” with the euro peaking near 1.40 versus the dollar, and China re-stimulating now that hot money inflows have subsided. That gives way to a U.S. fuel price shock mid-year, QE3 is response (we expect to buy the rumor and sell the fact with QE3), the euro/dollar sinking back to 1.25 as rescue requires rate suppression, and a summer swoon due to correlation that is fading…but not fast enough. Fiscal progress on taxes and GDP traction should support equities in a 4Q rally from that point, in our view.
We still see commodity equities and their brethren the Emerging Market stocks status as a leading “investment” fading after their Oct-11 to Apr-12 seasonal rally…”