12 Predictions for 2012 – 2012 Economic and Market Outlook
01/13/11 With 2011 in the rearview mirror, it is time to look ahead to this year and see what the markets will have in store. As we make these predictions we are reminded of the great quote from John Kenneth Galbraith, “The function of economic forecasting is to make astrology look respectable.” That being said we feel like these 12 predictions best represent our views on what is in store for investors in 2012.
- Volatility is here to stay – Uncertainty with regards to Europe and the presidential election in the U.S., will keep investors on edge.
- Europe will dominate the news and markets– This should hardly come as a surprise seeing that a day doesn’t pass without some type of news coming out of Europe. We expect the problems of the Euro-Zone will continue to affect the financial markets for the whole year.
- Greece leaves the Euro-Zone – Despite numerous bailouts, Greece will finally realize they are better off on their own. By leaving the Euro-Zone, they will be able to print their own currency with hopes of inflating their woes away.
- U.S. businesses come home – After years of outsourcing, U.S. companies will realize there is no place like home. Rising wages in emerging markets and supply chain problems are just some of the reasons businesses will choose to move back to the U.S. We also have better transportation, cheaper energy and plenty of people looking for employment.
- The U.S. economy will grow, but still leaves much to be desired – Despite improving earnings from corporate America, the U.S. economy as a whole will struggle to grow. We believe unemployment, political uncertainty, and low consumer confidence will prove to be too much of a drag to allow for significant GDP growth. We expect GDP growth to be under 2.5%
. - Mortgage rates stay low – Due to record low interest rates and no sign of them rising, mortgages will stay near historically low levels. Unfortunately, many Americans will not be able to take advantage of these rates with an estimated 20% of homes currently underwater.
- Facebook IPO – After many years of anticipation, we will finally see the Facebook IPO. The real question will be how successful it will be. If the 2011 IPOs of similar companies are any indication, we should see a successful open that is followed by a disappointing performance in the following months.
- We will see QE3 – In an effort to stimulate financial markets in the U.S., we will see the Federal Reserve start Quantitative Easing 3 sometime in the first half of 2012.
- Mergers and acquisitions will dominate the news in the U.S. markets – Corporate America currently has a tremendous amount of cash on their balance sheets. The surplus of cash combined with low interest rates should lead to a boom in M&A activity, as shareholders demand that capital be used or returned to them in the form of dividends.
- Mid and small cap stocks outperform – In staying with the previous prediction, we expect these areas to outperform because they are usually the beneficiaries of M&A activity.
- Companies will raise dividends – Cash rich companies will continue to raise dividends. We also expect to see increased dividends from companies that traditionally do not pay dividends. For example; Cisco started a quarterly dividend in 2011.
- Expect the unexpected – There will be some unexpected events that will have an impact on the markets. In 2011, the markets were impacted by the Arab Spring protests, Japanese earthquake/tsunami, debt ceiling debate, and Euro-Zone crisis. Just thinking about the events is enough to scare some investors out of the market, but the truth is each one of these presented investment opportunities for those people willing to look for them.
In addition to my 12 predictions, you can also download here one of many research reports we look at on a regular basis. It is an informative piece and I thought you might enjoy it.
If you have additional questions or would like to discuss how we will use this forecast in managing portfolios, please give me a call at (205) 989-3498 or email me here.
Mac Frasier
Senior Vice President
Wealth Consultant
Tags: Economic Outlook, Economy, financial, Financial Insights, markets, stock market
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