From the March 01, 2012 issue of Futures Magazine • Subscribe!

Equities looking for new pastures in 2012

The stock market started a second consecutive year with decent gains. Measured by the indexes, the S&P 500 ended January up 35.6 points, or about 2.72%; the Dow Jones Industrial Average was up 217 points, or about 1.72%; and the Nasdaq 100 was up 144.25 points, or about 5.85% (see “January rising,” below). “It’s been a very good January and if you believe history, then that portends some good things for the market,” says Paul Larson, equities strategist at Morningstar. “Taking a step back, the median stock is about 7% undervalued.” Although these are solid gains to start the year, analysts remain split as to the underlying reason for them.

Brad Sorensen, director of market and sector analysis at Charles Schwab, is one who says things are beginning to improve. “We’ve seen a little more of a return to more ‘traditional’ market analysis that focuses more on earnings,” he says. “The employment picture in the United States and Europe [sovereign debt] still are in the picture, but they’re not the overriding factors that they were last year.”

On the other hand, Keith Springer, president of Springer Financial Advisors, says little has changed from last year and stocks are climbing a wall of worry. “We’ve got Europe ready to explode again, but it’s the evil we know; we have the U.S. slowing; we had the Fed come out and say it’s keeping interest rates low [until late-2014], that indicates that the economy is slowing,” he says. “But, you have a disbelieving public. If you add all those together, then the market climbs that wall of worry. If it’s obvious, it’s obviously wrong.”

Both point to the same underlying data and come to drastically different conclusions. Here we will look at how earnings, U.S. employment, the Fed and the European sovereign debt crisis are affecting the stock market.

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