Wary Words on Stocks vs. Bonds in 2012

News Brief from AXA Equitable: Highlights from recent notable market news reports
January 6, 2012

Burton Malkiel, author of “A Random Walk Down Wall Street,” is recommending stocks over bonds for 2012, predicting a 7 percent yield on stocks vs. just 2% on the 10-year Treasury bond (“Where to Put Your Money in 2012,” by Burton G. Malkiel, Jan. 5, 2012, The Wall Street Journal), but not everyone is so sure.

Goldman Sachs’s David Kostin expects U.S. stocks will end 2012 no higher than at year-end 2011, which was no higher than year-end 2010 (“Street Wary on Its Random Walk,” by Steven Russolillo, Jan. 4, 2012, The Wall Street Journal). Morgan Stanley takes it one step further predicting the S&P 500 will end the year down 7%, citing slowing global growth, The Journal reported.

Adam Parker of Morgan Stanley told The Journal that the U.S. dollar’s strength against the euro is a strong signal for weaker earnings, adding, “We think the risk reward is skewed to the negative.”

Uri Landesman of Platinum Partners in Manhattan, told The Journal that while he expects the S&P will end the year higher, “I agree with the assessment that it’s going to be another very volatile year.”

Byron Wien of Blackstone Group sides with the optimists, writing in his annual “10 Surprises” list that oil will fall to $85 a barrel this year, the S&P will rise to 1,400, U.S. GDP will exceed 3 percent, and unemployment will drop below 8 percent (“Wien Sees Oil Falling to $85, S&P 500 Topping 1,400 in 2012,” by Lu Wang, Jan. 3, 2012, Bloomberg).

“The drop in the price of oil and the rise in the stock market improve both consumer confidence and spending patterns,” Wien wrote. “Recession fears and even ‘the new normal’ view of prolonged slow growth are called into question.”

Nevertheless, sentiment will surely play a role, and frustration and skepticism dominate as investors enter the new year (“World’s Woes Leave Lasting Scars,” by Tom Lauricella, Jan. 3, 2012, The Wall Street Journal).

“This dour demeanor comes after a year where many investors learned they had underestimated just how volatile and unpredictable life would be as the world’s major developed economies contend with a mountain of debt,” The Journal reported.

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