There's a an awesome trick used in illusionist circles called Motion Induced Blindness where, for unknown reasons, your brain actually blanks things out that are in plain sight, and simply ignores what is there. But once your eyes refocus - like magic - everything re-appears again.
That's sort of how Keith Banks, the president of U.S. Trust thinks the stock market will play out in the early part of the year, saying that perceptions of progress in Europe will be helpful but be short lived.
"So we think you start the year off strong, but then as you get towards the 2nd quarter and into summer, I think the problems in Europe come back," he says. "People will realize the issues have not been resolved, the debt problem is still there, the long term structural fix has not been put in place."
There is one exception to this make hay while the sun is shining forecast however, and that is earnings. Despite Alcoa (AA) upstaging itself by announcing capacity cuts two trading days before it is set to lead the Q4 earnings parade after-the-bell today, Banks believes the profit picture will continue to be one source of solidity amidst a swirl of uncertainty.
"We think the earnings story continues to be, in general, positive," Banks says in the attached clip, adding that while all the same old, well-known macro worries will continue to weigh on stocks in the form of low P/E multiples, "earnings will be what it takes to drive markets higher."
Another possible catalyst for higher stocks will be the return of money that has been pulled out of equities. This so-called allocation shift (from bonds to stocks) is little more than money flow, and a zero-sum version at that. That's because every dollar that leaves fixed income and moves back in to stocks is likely to cause as much pain on the departing end as it does profit on the returning end.
But generally speaking, Banks says his firms client, who have at least $3 million dollars of investable assets, are still carrying below average weightings in stocks, with about 50% in equities instead of a more normalized 60%.
In short, he says the super-affluent are still a little nervous and jumpy and in no hurry to rush back in to the market but if and when they do get more clarity and comfort on the big headwind issues, the money will follow.
What do you think? Does the New Year rally have any staying power or are we just setting up for another sell-off?