Nobody knows what’s going to happen in the markets next year. If anyone tells you they have some inside information on where the market is headed, it’s best to run far away from that person.
That said, there are patterns of behavior that give us some clues to things that are likely to happen in 2013. We’re not telling you that the following things are going to happen next year — but don’t be at all surprised if they do.
1. The market will go up early in the year, sag back starting at some point in the spring, then rise again in the fall.
That’s what it did this year, when the S&P 500 index increased by 11 percent through April Fool’s Day, then dropped 10 percent through the first of June. From there till the end of the year, the S&P has been up about 11 percent. We saw the same rough pattern in 2011: By May 1, the S&P 500 was up a solid 8.2 percent on the year, but by the beginning of October, the index had fallen nearly 20 percent from where it had stood on May 1.
At some point, you have to start expecting these things. It makes a certain kind of sense: People have bonuses to invest early in the year, as well as a renewed sense of optimism. Once that money is in the market, trading fades — and then traders go on vacation and people lose faith that the market will continue to be hot all year long. And then in the fall, people remember that they ought to be in the market after all.
Image: Trader Fred DeMarco, center works on the floor of the New York Stock Exchange Thursday, Dec. 6, 2012. TheU.S. stock market wobbled between small gains and losses in early trading Thursday. (AP Photo/Richard Drew)
2. The effects of the fiscal cliff will be short-lived.
We’re likely to go over it for at least a brief time, but Congress will pass some sort of fix before too long. The dirty little secret of the GOP’s corporate wing is that they don’t want the scheduled government cuts — particularly the reductions in defense spending, which are slated to amount to about $500 billion — any more than the Democrats do. Enough of the Republican-controlled House will be willing to team up with the Dems in order to get something passed.
And should the situation be resolved within a week or two of the New Year, the macroeconomic effects will be small. GDP will continue its path of solid but unspectacular growth, while unemployment continues to inch downward, going under 7 percent by the end of the year.
Image: House Minority Whip Rep. Steny Hoyer of Md. pauses during a news conference on Capitol Hill in Washington, Thursday, Dec. 27, 2012, where he urged House Republicans to end the pro forma session and call the House back into legislative session to negotiate a solution to the fiscal cliff. (AP Photo/ Evan Vucci)
3. Apple will bounce back.
The correction we’ve seen in the past two months — the stock is down about 25 percent from its September high — brought the price-to-earnings ratio down under 12. Microsoft’s P/E is over 14, and IBM’s is just under 14. There’s no reason Apple should be valued less than those venerable computing stocks.
The tale will be told on January 24, when Apple’s next earnings report is scheduled to be release. Then we’ll see what Tim Cook is made of.
Image: Chinese employees cheer customers as they enter a newly-opened Apple Store in Wangfujing shopping district in Beijing Saturday, Oct. 20, 2012. Apple Computer opened its fifth store in mainland China, and it is the largest in Asia. (AP Photo/Andy Wong)
4. Facebook won’t.
Facebook’s P/E, by contrast, is 139.53. Investors seem to have realized that just because a company is used by billions of people, that doesn’t mean it’s going to bring in billions of dollars. There hasn’t been a highflying Internet stock yet that has fully recovered from its initial deflating.
Image: (AP Photo/Nasdaq via Facebook, Zef Nikolla, File)
5. Utilities will show renewed energy.
The utilities sector was the only one in the S&P 500 that lost ground in 2012. The increasing interest in dividend stocks — utilities stock are historically very dividend friendly — would argue for a surge in popularity for the sector, not to mention simple reversion to the mean.
6. Stock funds will start to take in more money.
Domestic equity funds have been draining money for years now, with an estimated total of around $100 billion in net outflows suffered in 2012 alone. That can’t last forever, and it’s likely to turn around very soon. There’s too much money being made in American stocks for investors to continue to shy away.
Image: John Liotti, right, works with fellow traders on the floor of the New York Stock Exchange Thursday, Dec. 20, 2012. (AP Photo/Richard Drew)
And one bonus prophecy:
7. Bill Murray will win the Oscar for Best Actor.
In the noble tradition of previous winners like Jeff Bridges in Crazy Heart and Jack Lemmon in Save the Tiger, the Academy will recognize a well-regarded veteran who has never won before. And who doesn’t love Bill Murray?
Image: Bill Murray poses at London Film Festival Centrepiece Gala - Hyde Park on Hudson After Party at the Corinthian Hotel on Tuesday October 16, 2012 in London. (Photo by Jon Furniss/Invision)
For more from Tom Nawrocki, see: