From the December 01, 2011 issue of Futures Magazine • Subscribe!

New year, same issues: Hot markets for 2012

It’s been a rough year for markets. Between the unrest and disruptions associated with the Arab Spring to the ongoing sovereign debt crises in Europe, a new — or in the case of the Eurozone, the same on-again/off-again event — crisis has rocked the markets every time volatility began to subside.

With the new year around the corner, we asked analysts to look ahead to 2012 for their opinions of which markets have the potential to outperform next year. As it turned out, looking ahead necessitates a look back at recent events because most analysts feel that many of this year’s problems will not be resolved anytime soon.

Chief among the issues that will continue to affect markets next year is the sovereign debt crisis in Europe, even if some sort of plan is put in place, says Travis Rodock, senior futures analyst at eFutures. "It’s going to take some time for things to actually work. Nothing is really immediate in economies and it typically takes some time to start to see things [come] around," he says.

Shawn Hackett, president of Hackett Financial Advisors, says that even if Europe gives some clarity to the markets about a possible resolution to the crisis, it really wouldn’t change the economic picture, especially for economic-sensitive commodities. "If Europe gets its act together, it will just change the sentiment from ‘It’s the end of the world,’ to ‘We’re just muddling along,’" he says. "Muddling along is not bullish for economically sensitive commodities."

Greece continued to be the source of most concern throughout 2011, particularly as questions arose about its willingness to agree to austerity measures, but Spencer Patton, chief investment officer at Steel Vine Investments, says the other shoe is yet to drop in the Eurozone crisis. "We are not going to get out of this mess until Italy and Spain have a day of reckoning. It remains to be seen if it expands from there," he says.

Ongoing economic questions in the United States likely will continue to figure prominently in 2012 as well, especially considering the role the Federal Reserve may play. "If we do start to stabilize and continue growing, then the Fed is going to have to start raising rates [by mid-2012]," says Kurt Kinker, chief market analyst at Mirus Futures. "That’s dependent on if we double-dip, and so much of that depends upon the European fiasco."

Although the Fed seems to be backing away from fears of a double-dip recession, it still hasn’t seen much indication of an expanding economy. In the November meeting of the Federal Open Market Committee, the Fed said, "The Committee also decided to keep the target range for the federal funds rate at 0 to 0.25% and currently anticipates that economic conditions — including low rates of resource utilization and a subdued outlook for inflation over the medium run — are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013."

Patton was mostly in line with the Fed’s analysis, but says Europe still could affect the U.S. economy. "I have no doubt that in the U.S. we are not headed for a double-dip recession; the data just does not confirm that. It’s just a matter of if Europe can force us there," he says.

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