Optimists and Skeptics in a Tug-of-War

News Brief from AXA Equitable: Highlights from recent notable market news reports
January 13, 2012

On the one hand, Bill Gross of Pimco says global markets and the economy are at risk in 2012, so he has been loading up on U.S. debt (“Pimco’s Gross Says Global Economy, Markets at Risk in 2012,” by Susanne Walker and Trish Regan, Jan. 12, 2012, Bloomberg).

On the other hand, Laszlo Birinyi, who correctly predicted the bull market would survive its 2011 mid-year correction, says the S&P 500 will gain at least 8 percent in 2012 as decent corporate profits force bears to capitulate (“Bull Market Defying Strategists Seen Continuing by Birinyi,” by Whitney Kisling, Jan. 10, 2012, Bloomberg).

“Many concerns are opinions, but not necessarily facts,” Birinyi of Birinyi Associates Inc. told Bloomberg. “Later in the year, things will get a little bit better and sentiment will change, and we end up at the last leg where we’ve got the last-guy-in-the-pool scenario.”

Gross is skeptical. “Banks should be eight-to-one or nine-to-one in terms of leverage,” he told Bloomberg. “Right now, the system is an 18-times to 20-times overleveraged system, and that’s producing the risk in terms of tipping one way or the other.”

“For the moment, the U.S. Treasury is viewed as a safe haven,” Gross said. “Until we see some clear evidence in terms of where the world is going, reflation or deflation, then that’s a decent alternative.”

In the middle of this tug-of-war stands Bob Doll of BlackRock Inc. (“BlackRock strategist Doll sees slow growth in 2012,” by Andrew Osterland, Jan. 10, 2012, InvestmentNews).

Doll is predicting 2.0 to 2.5 percent GDP growth and 1,350 for the S&P 500 by year end (which would be 7.3 percent higher than at year-end 2011), according to InvestmentNews. “Don’t get carried away with the recent good economic news,” he said. “The U.S. economy will muddle through but it won’t grow very rapidly.”

IMPORTANT — AXA Equitable, AXA Advisors, LLC (member SIPC) and their affiliates do not provide tax/legal advice, or investment or market research. The quotes provided in this News Brief have been excerpted from media reports for general informational purposes only and do not represent the opinions of AXA Equitable, AXA Advisors or their affiliates, associates or employees. AXA Equitable and its affiliates make no representation as to the accuracy or completeness of any statements, statistics, data, opinions, forecasts, or predictions provided herein, nor will this information necessarily be updated or supplemented at any time. Any reference to market or index performance is for informational purposes only. It is not possible to invest directly in an index. This material is not intended, and should not be relied upon, as investment or financial advice and does not constitute an offer or solicitation of any kind.