Why Has Wall Street Gotten So Bullish About Next Year?
Even the bears are bullish for 2013, a year in which virtually every Wall Street expert believes the market will overcome its many headwinds and post a positive year.
While retail investors have been preoccupied with worries over fiscal armageddon, an election that is now past and a global economy nearing stall speed, strategists have been busy with projections that see sizeable stock gains.
Their reasons: A U.S. economy that is on the mend due to the nascent housing recovery and an expected surge in earnings, more cheap money from the Federal Reserve, and a general feeling that none of the various-worst scenarios out there will come to fruition.
"At first blush, it seemed like an inopportune time to commit to a year-ahead target and outlook, what with so many global uncertainties in our path," said Sam Stovall, chief equity strategist at Standard & Poor's/Capital IQ. "But most of these uncertainties have been with us for quite some time, and are now regarded by many as annoyances to resolve rather than obstacles to fear." (Read More: Why Europe Debt Defaults Are About to Rattle Stocks)
The firm is near the high end of the pack, projecting a 1,550 close for the S&P 500 by the end of next year, a nearly 11 percent rise from current levels.
Obstacles such as the "fiscal cliff" of automatic spending cuts and tax increases that will take effect if Washington fails to reach deficit-reduction targets worry Stovall, but he believes that issue, as well as the debt crisis and recession in Europe, won't stop stocks.
"We believe the manner in which these headwinds are resolved could result in an explosive rally rather than just a sigh of relief," he said. "Yet, handled inappropriately, these could end up causing a low flying economy to crash."
While not predicting an outright crash, Adam Parker, chief market strategist at Morgan Stanley, had through the year been predicting the market to swoon lower from a lackluster 2011.
But his projection of an 1,167 for the S&P 500 has virtually no chance of happening absent a colossal stock market event.
For 2013, Parker has changed his tune.
"We wish we didn't have to set a year-end target. Having had a very accurate one in 2011 and a pretty bad one in 2012, we are living proof that there is a negative asymmetry," he said in the firm's 2013 outlook. "We felt little joy in 2011 and lots of pain in 2012 related to the target, and find few credible investors really care where we think the market is going to be on a particular day one year in the future.
"What they more often care about is the logic and thought process, and the empirical evidence that support it."
Parker sees a modest 2013 rally driven by mega-cap dividend stocks and a rebound in China, as well as a broader picture of rising earnings.
His S&P 500 call is for "low- to mid-single-digit upside" with the S&P 500 closing at 1,434.
"We have been cautious on US equities for much of the last two years," he wrote in his analysis. "Our concerns around U..S deficit/debt and the obvious borrowing from the future that occurs from unconventional policy, the European sovereign crisis, and slower growth in emerging markets generally remain, but the acuteness of these issues appears for now to be less sharp."
While that's not exactly wide-eyed bullishness, it is enough to make contrarians think that sentiment could be getting a little overheated on Wall Street. (Read More: Exodus From Stocks Grows: 'Investors Are Turning Tail')
"The reasons we're skeptical of it being able to break to new highs is, first of all, everybody's bullish," said Walter Zimmerman, senior technical analyst at United-ICAP in Jersey City, N.J. "The readings are consistent with those at a major top."
Still, even someone normally as bearish as Zimmerman thinks the near-term direction is higher, though he doesn't see a sustained rally through next year.
That's not the case at Canaccord Genuity, which has one of the most bullish calls yet at 1,650, with only Piper Jaffray's 1,700 higher thus far.
"History, global monetary policy, and the fundamental sweet spot of U.S. economic data argue strongly for better performance as we move...into next year," Canaccord's Tony Dwyer and Michael Welch said.
Deutsche Bank, meanwhile, remains bullish with a 1,500 call. The firm is "encouraged by the continued intention of central banks to maintain accommodative policy" and believes that "given current market pricing, equities continue to offer the best risk-adjusted return compared to other asset classes."
And Bank of America Merrill Lynch, whose 1,450 for 2012 remains very much in play, believes the S&P 500 will close out the coming year at a 10 percent rise from its projected finish for the current year.
"We are cautious on the near-term outlook for US equities, but we remain constructive on the medium to longer term outlook," Savita Subramanian, equity and quant strategist at BofA, said in a note. "Given the S&P 500's attractive valuation and weak investor sentiment, we expect positive earnings growth to drive the market to 1,600 by the end of 2013."