Thus far in 2012, investors have been getting a real sense of deja vu. Just as was the case a year ago, the economic data have been increasingly bright, while the Federal Reserve's programs have been providing liquidity to the market. This helped the S&P 500 rise a solid 12% in the first quarter of 2012, mimicking impressive early returns in 2011. Yet as the chart below shows, the rest of 2011 wasn't quite so kind to the market.
Economic data started to appear less robust as the year wore on, and investors grew concerned that the United States may slip back into recession.
Whether 2012 turns out to run its course on a brighter note will depend on a range of factors, some of which I touched on in December 2011. Back then I identified 10 key factors that could affect stocks and the U.S. economy this year (part 2 of that article is here). Some of these bold predictions have already come to pass and some still may.
Here's a fresh update on my outlook...
What's coming true
Prediction 1: Jobless claims trend well lower -- CORRECT.
Prediction 5: States stop the bleeding -- MOSTLY CORRECT.
The risk of a major state default no longer appears likely. About 3% of gross domestic product (GDP) growth this year should help partially repair state budget gaps.
Prediction 6: Individual investors re-embrace equities -- MOSTLY CORRECT.
Monthly trading data at online brokerages has been firming, though equity mutual funds are not yet seeing sharp inflows.
Prediction 8: Oil prices start to move toward the $100 mark -- CORRECT.
Prediction 9: Latin American stock markets post a fresh surge -- CORRECT.
Too soon to tell
Prediction 7: Health care reform starts to take effect.