The S&P 500 index of leading shares has mostly run its course for the year, likely ending 2012 up 17 percent, although market strategists in the Reuters poll have become more optimistic for next year on aggressive efforts from central banks to stimulate the economy.
More immediately the threat still looms of the so-called "fiscal cliff" which could bring automatic tax increases and public spending cuts unless it is tackled before the start of the new year. The median forecast for the S&P 500 by year-end is 1,480, according to 50 respondents polled recently. By June 2013 it is seen rising to 1,525, a gain of nearly 6 percent and an increase from the June consensus estimate of 1,450. The Dow Jones industrial average is seen rising to 14,000 through mid-2013, which would be rise of 4 percent.
US stocks have had a strong year and the expectation had been that the market would now pull back as uncertainty persists over the outlook for the economy. Slowing growth in China and the deep problems stemming from the euro zone's debt crisis are also expected to hurt corporate earnings in the coming quarters.
"We believe the market will continue to be supported by low interest rates and inflation, plenty of dry powder in the form of $2.5 trillion still sitting in money market funds, and a wall of worry that can continue to be scaled," said Leo Grohowski, chief investment officer at BNY Mellon Wealth Management in New York, which oversees $171 billion in assets.
Grohowski sees the S&P ending the year at 1,475, then advancing to 1,525 by mid-2013. The US Federal Reserve recently announced plans to buy $40 billion in mortgage-backed securities on a monthly basis in order to push borrowing costs lower. The news boosted stocks, which had already experienced a summer rally in the expectation that the Fed, along with the European Central Bank, would become more aggressive in trying to boost flagging demand.
The climb in expectations of stimulus implies that the impact has largely been priced in already. The S&P's year-end target indicates gains of 17.7 percent for 2012, though only 2.7 percent above current levels. The Dow is seen rising just over 2 percent from current levels through year-end, closing at 13,750.
Investors are now awaiting the result of the US presidential election, with some strategists saying Mitt Romney would be a more business-oriented president than Barack Obama and therefore better for the market. However, the odds of an Obama victory have been rising in recent weeks, according to online betting site Intrade, and yet in that time the market has not reacted negatively.
"It seems the market is comfortable so long as the Republicans can control the senate," said Mark Martiak, senior wealth strategist at Premier/First Allied Securities in New York. Strategists were more concerned about the fiscal cliff at the end of the year, when a series of temporary tax cuts are due to expire and a package of automatic spending cuts are due to be activated. If Congress does not pass a bill preserving some of the spending and tax cuts, it could hurt economic growth.
"I've become a little more bearish about an adverse outcome from the fiscal cliff, which I think Wall Street has gotten complacent about," said David Joy, chief market strategist at Ameriprise Financial, which has about $570 billion in assets. "I'm going to predict it gets triggered," said Joy, who sees the S&P 500 falling to 1,350 by mid-13, largely because of these events. In a sign of the uncertainty over the cliff, year-end S&P estimates range from a high of 1,730, putting the index 37.6 percent higher for 2012, to a low of 1,167, implying a 7.2 percent decline for the year.
The bearish case may have been bolstered by recent warnings from shipping companies FedEx Corp and Norfolk Southern of a weakening world economy hitting their results. The transportation sector is viewed as a leading indicator for the market at large. On the other hand, the case for the bulls is strong. The targets for the first half of next year range between 1,240 and 2,100, with the high end of that range representing a new all-time high for the S&P, besting the current intraday record of 1,576.09 reached in October 2007.
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