NEW YORK – It may be a big if, but assuming Washington lawmakers can get past the “fiscal cliff,” many analysts say that the outlook for stocks this year is good, as a recovering housing market and an improving jobs outlook help the economy maintain a slow but steady recovery.
An advance of 10 percent in 2013 would send the S&P 500 toward, and possibly past, its record close of 1,565 reached in October 2007.
A midyear rally in 2012 pushed stocks to their highest levels in more than four years. Both the Standard & Poor’s 500 and the Dow Jones industrial average gained in 2012. Those advances came despite uncertainty about the outcome of the presidential election and bouts of turmoil from Europe, where policymakers finally appear to be getting a grip on the region’s debt crisis.
“As you remove little bits of uncertainty, investors can then once again return to focusing on the fundamentals,” says Joseph Tanious, a global market strategist at J.P. Morgan Funds. “Corporate America is actually doing quite well.”
Although earnings growth of S&P 500-listed companies dipped as low as 0.8 percent in the summer, analysts are predicting that it will rebound to average 9.5 percent for 2013, according to data from S&P Capital IQ. Companies have also been hoarding cash. The amount of cash and cash-equivalents being held by companies listed in the S&P 500 climbed to an all-time high $1 trillion at the end of September, 65 percent more than five years ago, according to S&P Dow Jones Indices.
Stocks in the S&P 500 index are currently trading on a price-to-earnings multiple of about 13.5, compared with the average of 17.9 since 1988, according to S&P Capital IQ data.
The stock market will also likely face less drag from the European debt crisis this year, said Steven Bulko, the chief investment officer at Lombard Odier Investment Managers. Policymakers in Europe appear to have a better handle on the region’s problems than they have for quite some time.
S&P’s biggest winners, losers in 2012
The following is a list of the five biggest gainers and the five biggest losers in the Standard & Poor’s 500 index in 2012.
PulteGroup. Signs that a housing market rebound is under way boosted this home builder’s stock 187.8 percent to $18.16.