Marc Pado Comments: US Stocks To Rise Modestly Next Year, Euro Zone Crisis Biggest Threat

December 2, 2011, Economic Times

US stocks are expected to end next year with modest gains, despite the threat of a global downturn brought on by the euro zone debt crisis and a tepid domestic economy that may still need more stimulus, a Reuters poll found.

Strategists polled had solid hopes for the US economy and many cited historically low price-to-earnings ratios. But the euro zone crisis has battered stock markets this year and there was a wide range of views on where Wall Street is headed.

The Standard & Poor’s 500 index is expected to rise about 7.5 percent from Wednesday’s close to 1,340 by the end of next year, according to a median forecast from over 40 respondents polled over the last week.

Forecasts range from a high of 1,550 to a low of 718, almost as low as the nadir of March 2009, when it touched 666. That 832-point spread was the widest in all of the quarterly Reuters polls since the financial crisis began in 2008.

But the benchmark index is expected to be about where it is now by mid-2012, following a tumultuous year that has it down a little under 1 percent since the close of 2010. Last year, it rose 12.8 percent. Indeed, the S&P 500 has fallen in six of the past seven months, with many investors fearful of a hit to global growth if the crisis in Europe worsens or leads to euro zone breakup.

"The more Europe goes to the back burner, the more the market will rise," said Marc Pado, US market strategist at Cantor Fitzgerald & Co in San Francisco. But that is a big if. Forecasts are decidedly less bullish than in the recent past, particularly for the big industrials. And U.S. economic growth is expected to be tepid next year at best, according to a recent Reuters poll.

The Dow Jones industrial average is expected to trade at 12,000 by the middle of next year, lower than Wednesday’s close. It’s expected to rise just 2.8 percent to 12,388 by the end of 2012.

Stocks have vacillated from despair to euphoria in the last two months, although most analysts generally agree that share prices are out of step with worries priced into government bonds.

Global indexes rallied on Wednesday after central banks around the world announced co-ordinated steps to prevent a credit crunch among banks in Europe struggling with the region’s debt crisis.

The S&P surged to its best monthly performance in 20 years in October after euro zone leaders pushed for recapitalization of banks and to bolster the region’s bailout fund.