Thursday, January 24, 2013

2013 Stock Market Outlook

I know I've waited nearly the entire month of January to provide a market outlook/commentary for 2013, but my opinion hasn't changed from January 1st. In short, I'm confident the major indexes (S&P 500, Dow Jones Industrial Average, NASDAQ) will finish higher than they started by 5-8%.

Let's say my target for the S&P 500 is 1,525, just to set something in stone. With the S&P 500 up 4.8% year-to-date, it would seem there isn't much wiggle room to this prediction. However, I've been expecting a correction since mid-December. I was seeing 1,350 as the low for 2013 - which will probably take something bad happening in Europe, China, or even the US. Bernanke and the Fed have set aggressive easing targets, so I'm not too concerned about any negative event translating into poor economic outcomes.

With my view that a pullback is coming - especially after the strong start to the year - I've been sitting on a lot of cash in my brokerage account since early December. I've made purchases only with the new cash from my paychecks, buying KMB and TAP, but not touching the big pile of dough. I get paid again Monday, so have been scouring Bloomberg for a good buy with the new funds. I've felt a little silly holding such a large amount of cash given the market's run up, but have had my portfolio slightly beat the S&P despite the drag due to a few strong performers.

In summary:
1) S&P 500 on 12/31/2013: 1,525 (+6.9% annual return)
2) Low for the year: 1,350 (-9.0% from today's close)
3) No crash - with central bankers easing and willing to do nearly anything to avoid recession. Just need to find a good time to buy.
4) I've been sitting on tons of cash, but will try to remain patient for the pullback.