I see stocks going net down the rest of the year as fiscal cliff woes lead to uncertainty and earnings cuts for 2013. Perhaps they go down alot-1250-1325, sometime in the 1st Q because all the uncertainty will lead to a negative job number in the Jan-March time period-leading to a collapse in confidence.
To the rescue will be central banks as they continue to distort markets with QE and perhaps poor on more QE. That will provide a floor under sticks, but will also prove, by the 2ndH of 2013, to ignite inflationary spikes. That will cause the big move up in stocks as money will flow out of bonds to take the S&P 500 to 1500+ by the end of 2013.
I'm raising cash now in preparation for a 100 or so point downswing in the S&P500 in the coming 1-4 months. What I will buy coming out the other end will depend upon what is cheap. I still like nat gas, wireless infrastructure and net/net plays as themes.
Until then, waiting for the carnage to create the bargains.
Even if a "FC" deal is done (before the end of the year), I view it as an opportunity to sell into strength (if there is a relief rally) as a recession is at our door with negative job growth (one or more months) for the 1stH of 2013 and lowered earnings estimates for all of 2013.
At best, the FC will be a fiscal drag and with billions of $ of income pulled forward into 2012, the 1stH of 2013 will be weaker than it would have been as that pulled forward income will be saved vs spent until the macro-econ numbers turn better (2ndH of 2013).
Continue to look for a 100 point or so drop in the S&P500-from the 1425-1430 level in the next 1-4 months. Then look to buy when everyone else is scared and bargains are compelling.
No matter what deal is done in Washington and when it is done, the cost of government is going up-with more private sector assets flowing to Washington where it will used less efficiently than if those $s stayed in the private sector. Higher cost of government increases the cost of business and will lower consumer spending-both leading to downward pressure on corporate profits.
Also, Europe is getting worse with industrial production and retail sales falling faster in recent months vs earlier in the year. GDP was down .1% in the 3rd Q, it will fall more in the 4thQ. Italy will surface as an issue as their stepped up election, now in Feb vs April or May, will be a referendum on whether Italy stays in the Euro-zone or not. Italy is the number 3 country with debt outstanding behind the US and Japan. With all the upcoming talk of "exiting", will put downward pressure on their bonds-putting downward pressure on banks and the Euro. Again, downward pressure on corporate profits.
China, still an export based economy will feel the downward pressure as their biggest export markets, US and the Euro-zone, continue to be soft.
Will some stocks, with strong fundamentals, be able to power through what I think will be downward sloping broader averages? Yes, of course, but fighting the tape will leave less upside as valuations will be compressed.
What will the bullish case look like? I think it will have to start from lower levels, S&P 500 closer to 1300, and be preceded by $65-$70 oil-which will act as a tax-cut for consumers worldwide.