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December 27, 2012 at 03:51 PM
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)
