How to Play Equities in the Second Half of 2012 — Think U.S.

At the same time, the last seven months of an election year have seen only two losses in the S&P 500 index since 1952 — one in 2000 when the dot com bubble burst, and the other in 2008 when the Great Recession took hold.

No such anomalies are expected this year, says Jeffrey A. Hirsch, president of the "Stock Trader’s Almanac", who predicts the Dow Industrials will end 2012 in the 10,500 to 11,500 range, 5 percent to 10 percent higher than 2011.

“Things are setting up seasonally and historically true to form,” says Hirsch.

Like Wren, Rendino believes cyclical stocks will steal the show during the third and fourth quarters fueled by investor optimism — and a wealth of opportunity for value investors.

“We think expectations are too pessimistic and that investors are doing the wrong thing running for the hills,” he says, noting valuations are not reflected in the price of many stocks. “There are stocks out there trading at lower levels than they did in 2008 and 2009 when the world ended, and most are in the information technology sector.”

As such, he says, it’ll likely be financials, info tech, and energy stocks that "return in the back half of the year as we move towards a ‘risk on’ environment;” one in which investor sentiment is driven by confidence rather than fear.

Regardless of which sectors ultimately take the lead, investors seeking downside protection in the current market environment would be wise to insulate their portfolios with U.S. stocks, while maintaining their exposure to international equities, says Wren.

“You definitely need domestic stocks, but if you’ve got any kind of time horizon you’ve got to have some international exposure in a diversified portfolio as well,” he says, noting moderate investors' international equities allocation should be 20 percent — 25 percent. “If you look out over the next 10 or 20 yeas, the majority of growth will be in the emerging markets so clearly you’re gong to want some exposure there.”