For Investors, an Uncertain Second Half

The picture is mixed for 2012; expect steady waters but lots of fog.


Kozhemiakin, for one, doesn't expect a U.S. recession in the second half, though if Congress doesn't come to terms over its fiscal impasse, all bets are off for next year. "If it's not resolved, it will be a major blow to U.S. economic growth, and I think we're going to see a recession in the first half of next year," he says. "But we don't expect the U.S. to go off the fiscal cliff."

Still, it's probably unreasonable to expect a sharp pick-up in the current half, at least one strong enough to let anyone, least of all Barack Obama, breath easy. There's a whole school of thought, authored by people like economist Irving Fisher, that severe financial shocks (like those in 2008, 1929, 1907—history offers plenty to choose from) take years to recover from. These are not V-shaped events; they're more like the Pacific basin, wide and seemingly endless.

So we seem to be enduring a prolonged period of what Fisher called "debt deflation," aka deleveraging. Until it's over—and lots of folks think it has another two years or so to run—don't expect any miracles from the stock market or the real economy. Roberts thinks the second half won't look too different from the first—the S&P wandering around in a narrow range never too far from the 1300s. "The economy's not particularly bad, and it's not bad enough to be catalyst for Fed action," he says.

On the bright side, no news can be good news. Says Roberts: "The only danger would be something falls apart in Europe, something happens in the Mideast or China and the Fed doesn't move quickly enough."