The Dow Jones has been on a tear over the past few weeks as the market has taken a turn higher and advanced over 12,000. The market is on pace to finish out the year better than I predicted. I thought that the Dow Jones would close at 11,500 and it is currently above 12,200. The market has been pretty resilient this year surviving the economic news in Europe and fears of a double dip recession over the summer. So, can the market continue its upwards pattern in 2012?
There is likely to be little movement in the market over the next week as investors typically avoid trading the last week of the year. The last few weeks of December are always a bad time to enter the market since many fund companies pay out large dividends leaving investors liable for taxes from investments they held only a few short weeks.
A lot of investors predicted a robust market for 2011 and have been disappointed by the lack of gains for the current year. There is however hope for a better 2011. Some analysts are forecasting double digit gains for 2011. Here are three reasons to be bullish on the market for next year.
- The stock market just might be cheap due to the low P/E ratios. Some analysts believe that the market is still cheap since the S&P 500 is trading at 12 times its expected earnings per share for 2012. A properly valued market normally trades at 15 times earnings while an overvalued one trades even higher.
- The economic news has been getting better. We may not be experiencing a full blown recovery yet but the economic news in the country has been getting better. The jobless claims number is dropping and the unemployment rate has declined as well. The unemployment rate is down to 8.6% which is as low as it has been in years, If the economy continues to improve and the jobless rate drops, we could see some real growth in GDP.
- There is still hope that the market can take off because of the financial sector. The financial sector has been a drag on the market for years and has kept the breadth of any recovery relatively shallow. If the banks can get their earnings up, the stock market could be in for a real boom period. This will require a deceleration of foreclosures and an increase in return on assets.
Those are just a few of the areas that could be catalysts for the market next year. If the market is to take a turn higher and approach pre-crash levels then the domestic economic news will have to improve.
It’s nice to see the market finally recovering (maybe?) — I don’t understand why you say that buying stocks now is bad since you have dividends you have to pay taxes on… isn’t that the point of buying dividend stocks, and it would be better to buy them now because you get dividends right away to start investing into more stock?
All valid points on the positive Valuation is low and will remain low due to the austerity in many parts of the world.. Debt help keep p/e high now they will keep them low. only in our era has 15 PE been normal. prior to the 1970 10 PE was normal. The financial sector will stay muted because their is no more money printing as soon as it begins the financal secotor will move higher…. the general economy will do better once the real estate sector wakes up.
I don’t know if the picture will continue to look good in 2012. A lot of things could hit the fan, but at the same time, many trends are making things better. I prepare for the worst but hope for the best!
I still see the market as underpriced. I’m looking for a mid sized rally in 2012.