Market Preview: Slow and Steady
Updated from 8:01 p.m. ET with commentary on Thursday's economic data .
It's been a steady march higher with minimal volatility. No nosedives in the portfolio to ponder. A nearly complete about-face from the violent swings that wracked stocks from August through October of 2011.
The thing is though, 2011 started out much the same way. Not quite as strong but stocks were looking awfully good this time last year as well and we all know how that turned out.
Gary Thayer, chief macro strategist at Wells Fargo, did a little compare-and-contrast of 2011 and 2012 on Wednesday, and his analysis suggests that, while there's no anticipating the curve ball that could come along and knock this uptrend off track, the current environment actually looks more favorable this year than last.
For instance, in February 2011, stocks had nearly doubled in the previous two years with only one mild period of correction occurring in the summer of 2010, engendering excessive optimism, according to Thayer, despite headwinds of rising inflation at home and interest rate hikes abroad.
These factors exacerbated the volatility that arrived after Japan was hit by its devastating earthquake and tsunami in March, and then the end of QE2 and the U.S. government's debt ceiling debacle were too much for stocks to overcome until much later in the year. Now, conditions appear to be set up much better, Thayer says, barring unforeseen events of course.
"The stock market may be starting this year positively like it did last year," he writes. "But many of the fundamentals are better in 2012 than they were in 2011. Inflation is subsiding this year, and many of the central banks that raised rates to fight inflation last year are cutting interest rates this year. As a result, 2011's monetary policy headwinds are a tailwind for the stock market this year."
Thayer also thinks that, despite many over-the-top bullish readings on sentiment of late, that investors are more wary now than they were last year, perhaps because of how 2011 ultimately played out.
"Many people are still worried that the U.S. economy might go into recession because of problems in Europe or a hard landing in China," he argues. "Finally the S&P 500 is only slightly higher than it was in February 2011. Consequently, the stock market is not over extended despite its orderly 8% advance during the first seven weeks of 2012."
Who knows? Maybe this time slow and steady does win the race. It would incredibly disappointing if the S&P 500 finished flat once again in 2012 after getting off to its best start in more than a decade.