It's prognostication week for market watchers as we limp toward the finish of a terrible year.
Predictions -- fun to read, but most often wrong -- are rarely as difficult to formulate as they are right now. Investors are struggling to assess a continually jarring mix of terrible economic data and the ongoing threat of undiscovered landmines placed throughout the financial sector during the last decade or so of easy credit. But that won't stop people from trying. Below, we take a quick look at what could be around the corner in 2009:
The WSJ kicks things off with a quick survey of its forecasters, and finds they're all over the map:
A quick MarketBeat canvassing of a handful of market strategists shows investors are anticipating anywhere from a stellar, 45% turnaround in the stock market, or another dreary year of grinding losses that ends with the S&P around 600 to 700.
One emerging consensus — which, of course, makes it a dangerous one — is for a first-half rally, built on the back of optimism as the new administration takes office, an expectation that the usual year-end avoidance of risk will reverse, and expectations for economic recovery due to a spate of mortgage refinancings.
Basically, strategists see markets moves in 2009 as a battle between the help from government stimulus and the hurt from the ongoing economic slowdown. Since we don't know how big either force will be at the moment, expect volatility to continue.
For more specific investing ideas CNBC polls some money managers who say 2009 will be a good year for dividend plays, infrastructure, select high yield bonds and managed futures. Plus, Seeking Alpha is rounding up contributors' thoughts on Positioning for '09 through the first week of the year. Minyanville's Holmes Osborne says Embrace the Bear.
For the greenback, Kathy Lien, a currency expert at Global Forex Trading, looks ahead and worries about a possible run on the dollar in 2009. She writes:
One of the biggest risks facing the US dollar in 2009 is a run on the currency. The global slowdown has forced many central banks around the world to become internally focused. This means that any money that they have will be spent on spurring growth domestically instead of funding US spending. With next to zero yield, a deteriorating balance sheet and the risk of a weaker dollar eroding the notional value of any US investments, there are almost no reasons for foreign investors to load up on US debt. Having been burned badly by investments in Fannie and Freddie Mac, sovereign wealth funds like China have become skeptical of buying more US paper. According to an editorial in the state owned newspaper, China Daily, “China’s increased purchase of U.S. Treasury securities should not be interpreted as an endorsement of the assumption that the U.S. can borrow its way out of the current financial crisis.” If dollar demand continues to wane, we have yet another reason to expect the dollar to weaken in the first half of next years.
The take-away from the above is that any hint of meaningful bullishness is still on the retreat even after this year's unprecedented damage. The case for a sustained rally -- a successful stimulus plan, some wishful hopes for a quick economic recovery -- is really pretty vague, and rings even more hollow compared to a long list of specific reasons to worry: the weak consumer, questionable profits, still-tight credit, rising joblessness, and modest earnings. That doesn't mean there won't be opportunities, or periods of upward moves in share prices. The point is that the downside risks are still high, and I'll only predict that they'll stay that way for a decent chunk of the year to come.