Stocks End 2011 With a Question Mark

Despite wild swings, the S&P 500 seems set on finishing the year at just about where it started.

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Stock Trader

The surprise stumble in the economy after the Japanese earth quake and the noxious headwinds from Europe, as it tried to contain its credit crisis, were factors that made forecasting tough in the past year. As a result, many strategists were off the mark with their yearend predictions.

The S&P 500 edged up 13 points Thursday to 1263, and is now 6 points, or 0.4 percent above its final 2010 close. Its high of the year was 1370 and its low was 1075. The broader S&P 500 is the index strategists use to forecast. The 30-component Dow , meanwhile, is 6 percent higher on the year, and it added 135 points Thursday to 12,287.

“For all the volatility, it just seems ironic that the S&P is going to end the year just about where it started and the only return anyone would get is from the dividend. It’s just a kind of ironic cap to a crazy year,” said Jack Ablin, CIO at Harris Private Bank.

Ablin lightened up on stocks in July, but he had considered doing it earlier when the market was making its highs. “We got to 9.5 percent in April, and we were talking about declaring victory and selling, and then we didn’t sell until July or August when the market was up 4 to 5 percent at the time. That was our year end target (in April) and maybe we should have declared victory and sat the rest of the year out,” he said.

One strategist who seems to have just about gotten it right, depending on Friday’s performance, is Andrew Burkly of Brown Brothers Harriman. He had targeted 1250 for year end, since the start of 2011 and did not cut his forecast or raise it like some analysts.

In August, he said the market had seen its highs for the year, but probably not its lows. The lows came later in October.

“We had a very good year, and I think the reason is we just did the opposite of everyone else,” Burkly said in an interview Thursday afternoon. “So the next move for us is to wait until people get more optimistic, then go in the opposite direction. We got more optimistic back in September.”

For 2011 performance, Stuart Freeman of Wells Fargo Advisers also had a close call though he gave himself a cushion, with his expectation the S&P would end the year between 1250 and 1300.

The best performing sector of the year was utilities, up 15.6 percent and the weakest was financials, down 17.3 percent. Freeman, in a recent interview, said he was doubleweight utilities, but not ready to jump into financials yet and is still underweight them.

“I’m waiting to change that,” he said of his position on financials. He said the situation in Europe will need to settle down “and we see investor and consumer confidence lift a little.”

2012?

Burkly’s call for next year also goes against the crowd. “We’re thinking 1330 to 1350 in the first half of the year, then that’s it,” he said. While his target may be similar to some, he expects the market to perform better in the first half of the year, not the second half like many analysts.

“I think next year is a lot more of the same,” said Ablin. “I don’t see too much of a difference in trend. The biggest wild cards are going to be Europe. Do they resolve their policy problems? Do they ultimately give the keys to the euro printing press to the ECB (European Central Bank)? If they do that, which would be a big success, what does that mean for the U.S.? Are we next, or do the bond vigilantes turn their attention to Japan?”

As far as 2011 goes, “the good news is we didn’t fall off the table. The bad news is it’s undermining the confidence of investors. This is a year where breaking even was a success,” said Ablin. “Look what happened to the international markets, emerging markets, commodities. Protecting your principle was an achievement this year.”

The eurowent on a wild ride this week, breaking below 1.30 against the dollar Wednesday, and then falling below 1.29 to a 15-month low in early Thursday trading. The euro recovered ground and was at 1.2961 late in the day.

Ablin said 2012 may be the year when the stock market decouples from the euro, which has been tightly correlated to stocks and risk assets.

Follow Patti Domm on Twitter: @pattidomm

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