History makes clear that presidential election years are usually favorable for the securities markets. Here’s hoping history repeats itself.
Amid uncertainties about the U. S. economy and widespread worries over the European banking crisis, this year’s Research Roundtable of eminent investment experts is markedly mixed as to what the new year will bring.
Indeed, the market correction of this past summer and fall and the struggling economic recovery served only to raise the nation’s angst quotient and refuel negative sentiment, even as contrarians say the latter could turn out to be a positive indicator for next year.
No doubt 2012 will be an important year for our country; and while it is particularly challenging to forecast the 12 months ahead, our panelists are confident that astute investment professionals using the right strategies can successfully steer clients through the choppy seas.
Once again, it will be a stock picker’s year, according to the experts, with the accent on sectors that include industrials, technology, energy and health care. When it comes to bonds, the watchword is wariness.
In mid-October 2011, here’s what our Roundtable guests predicted for the year ahead.
John Buckingham (Aliso Viejo, Calif.) Chief Investment Officer, Al Frank Asset Management, managing $500 million in assets. Editor, The Prudent Speculator newsletter. Manager, the $85 million Al Frank Fund, with an annualized 10-year return of 6.7 percent (through Sept. 30, 2011).
Kenneth L. Fisher (Woodside, Calif.) Chair-CEO, Fisher Investments, which manages $36 billion in assets. Forbes “Portfolio Strategy” columnist for 27 years. New book: Markets Never Forget: But People Do (Wiley, Nov. 2011).
Jeffrey Gundlach (Los Angeles) CEO-CIO, DoubleLine Capital, managing $17 billion in assets. The flagship Total Return Bond Fund’s annualized total return since its April 2010 inception through Sept. 30, 2011 is 17.4 percent.
Robert Rodriguez (Los Angeles) CEO, First Pacific Advisors; advisor to FPA Capital, FPA New Income funds. Firm manages assets of $16.2 billion. FPA Capital’s compounded rate of return from July 1984 launch to Sept. 30, 2011, is 14.39 percent. FPA New Income hasn’t had a down year in 33.
What’s the state of the market right now?
Gundlach: Half-way prepared for a hurricane, half-way hoping it doesn’t land on shore. A kind of no-man’s land.
Fisher: Sentiment disconnected from fundamentals. We’ve been through a major full-scale correction within a bull market.
Buckingham: Schizophrenic, driven by news out of Europe.
Tell me your outlook for the economy and stock market?
Rodriguez: From a standpoint of health care and fiscal policy, 2012 is the most important year in 80. I’m decidedly cautious. Europe is in or near recession. The odds are increasing north of 50 percent that we’ll be in recession next year. Several quarters of economic growth will have a 1 percent handle. The stock market will be facing both profitability and governmental issues.
We’ve had the worst recovery on record. While [Federal Reserve chair] Ben Bernanke is trying to improve the situation, he’s really harming it.
Fisher: Bernanke is nothing but a disaster. Where’s duct tape when we need it!
So, do you agree with Mr. Rodriguez that we’re on the road to recession?
Fisher: We’re not in recession, nor are we headed into one in 2012. The economy will be okay but not gangbusters. The non-U.S. world on average will be stronger than the U.S. world. [But] our economy is much stronger than people think, quite robust. Leading economic indicators are high and rising; yield curves are steep. What’s weak is our sentiment.
Next year we’ll have a bull market with gusto. The aftermath of a correction is usually an up mode. It will be a nicely above-average year, a year to be invested in equities as you’d ever be.
Buckingham: We’ll avoid recession. Economic indicators are not coincident with negative GDP growth. We’ve already discounted a mild recession. The economy is strong. I expect stocks to be up more than 10 percent. Next year should be a very good time to focus on dividend-paying value stocks since they’ve underperformed in the last couple of years.
Gundlach: With this economy, you have one foot on the pier and one foot in the rowboat, and the boat is drifting — so you’re probably going to end up in the water. There are a lot of structural issues; and because of that, it’s a difficult investment environment. That’s not a very rosy outlook, but investing is about reality. Against this backdrop, the markets should be kind of cheap.
Are we headed toward another financial crisis?
Rodriguez: Unless there is fundamental structural budgetary reform in the Congress, I don’t trust them.
What’s the biggest threat to the markets next year?
Rodriguez: Continued political incompetence with regard to our fiscal issues.
Buckingham: An unpleasant event out of Europe. [Also] there’s not a lot of confidence in the system, and there’s fear that something could blow up. There are still unknowns on the balance sheets of many financial institutions.
Fisher: Probably something that creates geopolitical instability because we’re not looking for it.
Gundlach: The collapse of the European banking system.
How do you see corporate earnings shaping up next year?