Expect the stock markets to continue to zigzag through 2012 because of international issues that continue to hamper the U.S. economy and create uncertain business conditions for publicly traded companies and investors.
That's according to some Omaha-area financial advisers. On average, the six financial advisers interviewed expect the Dow Jones industrial average, a widely followed indicator of overall stock market performance, to grow slightly and close 2012 at 12,483, which would represent just a 2 percent increase from the index's 2011 close.
That small gain would fall short of the Dow's gain of 5.5 percent during the past 12 months. Over that same period, the Standard and Poor's 500 Index and the Nasdaq exchange were essentially flat. The S&P declined by less than one point, and the Nasdaq dropped by 1.8 percent.
Those figures came during one of the Dow's most volatile years. According to data compiled by Jeffrey Hirsch, the editor-in-chief of the Stock Trader's Almanac, the index in 2011 closed 100 points higher or lower on 102 occasions — the fourth most (behind 2008, 2002 and 2000).
In short: despite the peaks and valleys, the stock market ended the year about where it began.
There are a smattering of factors that will play a role in the 2012 markets, and many of them are similar to those that Omaha-area advisers predicted would influence the markets through 2011. The most important of those remains the European debt crisis.
The effects of overextended European Union countries will remain, in some form, until the EU can draft and enact a long-term fix, and that could take between five and 10 years, said George Morgan, a former adviser who now works full time as an adjunct professor of finance at the University of Nebraska at Omaha.
"I think we're going to have some headwinds," Morgan said. "The Europe situation is a long, long way from being resolved. Nobody knows what the collapse of the euro would look like."
Most of the advisers expect 2012 to face some rough patches in the first half of the year, then rebound and see some growth in the back half.
In addition to Europe's struggles, other negative factors on the Dow, said Russ Kaplan, owner of Russ Kaplan Investments, could be a rise in interest rates if the Federal Reserve Bank decides to budge rates from the near-zero percent they've been since December 2008, the peak of the financial crisis and Great Recession.
Even though the Federal Reserve has pledged to keep interest rates low through mid-2013, Kaplan, one of the group's only optimists, thinks inflation is going to begin creeping into the economy and affect consumers and business.
On the economy, Kaplan said he's adivised his clients to brace for a very slow recovery, but that it will be a recovery.
"I do feel positive overall," he said.
Historically, election years mean good things for the markets, including the S&P 500, a measure of some of the country's largest publicly traded companies. Since 1928, the S&P 500 has gone down only three times in the last 21 presidential election years.
But when President Barack Obama was elected in 2008, the S&P receded 37 percent, said Jeff Sharp, principal at the SilverStone Group.
So what's in store this year? Will the politics of another presidential election advance the markets or will the venom spilled on the campaign trail stir the pot of uncertainty?
Sharp is betting on the latter.
"The math suggests that the election years have been good with the market, but I think maybe this time is different," Sharp said. "One could make an argument that the elections have become more and more bitter and that it can be scarier for investors as far as the negativity and the unknown."
The advisers expect mixed results that will result with the markets ending the next year up, overall, regardless of the outcome of the 2012 election.
Of course, these adviser estimates are just that — an educated guess — but Dan Feltz, the principal wealth adviser at Feltz Wealthplan, offers a high-end prediction, saying the Dow would close the year at 13,350.
On the conservative end of the spectrum, Ron Carson, founder and chief executive officer of Carson Wealth Management, expects the Dow to graze a high of 12,600 before receding to close at 9,700.
Most of the predictions for last year overshot the actual results. A year ago, Carson also had the lowest prediction for the Dow's close — 12,250 — and he also was the closest to the actual result. Feltz's year-ago estimation of a 12,500 close was second-best.
Last year, advisers polled for The World-Herald's stock forecast had a rosier view of the markets. Corporate earnings were expected to rise and there remained optimism that federal stimulus efforts would spark hiring.
While corporate earnings were OK last year, many businesses remain in a hiring shell and some continue to sit on massive cash instead of spending it elsewhere.
Individual stocks, of course, beat or lagged the averages this year. Among 2011's winners were McDonald's, up 31 percent on the year, and IBM, which increased 27 percent. The pharmaceutical giant, Pfizer Inc. also had a hot year, finishing up 24 percent.
On the other end, big losers included Bank of America, which plummeted 58 percent; Alcoa, the global metal producer, sank 44 percent; and Hewlett Packard dropped 39 percent.
It's all left the advisers feeling uncertain about the market's upside in 2012.
"We think next year is either going to be up a lot or down a lot," said Brett Carson, the firm's director of research said. "Right now we're like a running back behind a blocker and we're not sure which way we're going to cut."
Feltz expects this year to be a tough one but said positive holiday retail sales figures, the announcments of more corporate stock buyback programs and a steady mergers and acquisition market are good signals.
"Companies feel good about having cash in their coffers," he said. "I expect earnings to continue to rise. That will be the tailwind. The headwind will be European debt."
To help smooth out the volatility in the markets, Mark Wynegar, principal at Tributary Capital Management, said investors need to focus their equity investments in dividend-paying companies with strong balance sheets.
Other advisers said that it's best to keep a balanced portfolio, but if they were to choose an area in which to invest less, or be "underweight," that would be in equity investments tied to Europe.
Wynegar, who specializes in tracking companies with smaller market-capacities, said the European crisis will be the biggest factor in what he expects to be another volatile year.
"In isolation, the U.S. would be OK," Wynegar said. "But there are lots of these external factors bringing us down. I honest to goodness would not be surprised if we were up 25 percent or down 25 percent."
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