The stock market may already have seen its best gains of the year.
The March CNBC Fed Survey finds that market participants on average think the S&P 500 will be mostly unchanged through June and rise only 2.3 percent by December 2012 from current levels.
The good news may be that the 67 respondents, including economists and equity and fixed income managers, at least see the market holding onto its 11.7 percent gains year to date, with a bit more to run. And there are some who are more optimistic.
“For as long as the economic data is improving, stocks are moving higher,” John Kattar, Eastern Investment Advisors, wrote in response to the survey. But like many other bulls, Kattar is only a bit more upbeat than the average: instead of a 2.3 percent gain, he sees the S&P rising 3.3 percent by year end.
Like other bears, John Roberts of Hilliard Lyons is concerned about rising oil prices, higher interest rates, and Europe.
“The extremely heavy insider selling is also another troubling data point,’’ Roberts wrote. “We anticipate a pullback in the markets in the near future that continues through the election.”
By year-end, Roberts sees the S&P declining to 1295, or nearly 8 percent from current levels. About a third of respondents forecast the S&P will fall below its current level by year end.
But in a compelling turnaround, Peter Tanous, president of Lepercq Lynx Investment Advisory, has turned bullish. Tanous is co-author of Debt, Deficits and the Demise of the American Economy along with CNBC.com senior markets writer Jeff Cox, in which he warned of a deficit-spawned crisis. But Tanous actually has the highest S&P call of the group at 1670.
“My depressing book notwithstanding, our firm turned bullish late last year on signs that the consumer was coming out of the closet and that consumer spending looked like it was going to lead to a recovery,” Tanous wrote in an email. “The missing link was housing but all the stats we looked at suggested that housing was on the verge of a recovery too.”
Tanous added that he still believes a crisis is on the way.
For the moment, the survey found stocks should continue to enjoy the benefit of an easy Fed this year. Only 9 percent of respondents forecast a Fed rate hike in 2012. But 53 percent see a rate hike by 2013 despite the Fed’s own forecast that rates won’t rise until late 2014.
The backdrop for current stock market forecasts is modest economic growth amid a declining chance of recession. Gross domestic product in 2012 is forecast to grow 2.46 percent year over year, up just a tenth from the January survey. In 2013, GDP is seen rising 2.74 percent compared with 2.59 percent in January. GDP grew 1.74 percent in 2011.
Another key economic factor: survey respondents see the stock market battling higher interest rates this year. The yield on the 10-year is forecast to rise to around 2.3 percent by June and 2.59 percent by the end of the year. The long bond closed Friday at around 2.3 percent.
“The recent change in sentiment in the bond market has a strong possibility of being the start of a new era for bonds,” said William Larkin of Cabot Money Management. He forecasts a 2.85 percent 10-year yield by the end of the year.
John Ryding of RDQ is among the bearish on bonds, forecasting a 3.5 percent 10-year yield by year end to go along with his expectations of 3 percent economic growth.
The survey found that the European threat to the economy and stocks has receded but has not gone away.
The European financial crisis ranked as only the third most pressing threat to the U.S. economic recovery, after tax and regulatory policies and high gasoline prices. Twenty-nine percent of respondents believe no country will leave the euro zone in the next five years, up from 24 percent in January.
Still, 69 percent see some countries being ejected or leaving, up from 63 percent. But no market participant sees the euro zone monetary union dissolving entirely, compared with 6 percent in January.
Asked the probability of a second default by Greece, 72 percent of respondents said they expect one in the next three years. The chance of default by Portugal rose to 53 percent from 49 percent, while it declined 3 points for Italy to 25 percent.
When it comes to worries about tax and regulatory policy, some were concerned about spending too much and others about spending too little.
“The single most substantial threat that the U.S. economy faces is a shift to fiscal restraint in 2013 based upon the possible expiration of tax reductions…and reductions in spending,” wrote Hugh Johnson of Hugh Johnson Advisors.
But Rod Smyth of Riverfront Investment Group said, “The biggest economic issue facing the world economy: unsustainable debt.”