Kurt Kinker, chief market analyst at Mirus Futures, concurs with Springer’s assessment of the U.S. economy, but disagrees about how markets may react. “I could see a disconnect between the stock market and the economy,” he says. “If the economy were to deteriorate or even go into a recession, I’m not sure it would have the expected impact on the [stock] market. Right now we are through resistance, so the path of least resistance is up.”
Kinker is looking for a bull market in stocks next year and has the S&P 500 as his top pick for 2013. “The S&P 500 is the one that will see the biggest move higher. Initially, 1505 is my target,” he says. “If it was to get through that, especially decisively, we easily could move up to the 1550-1560s, which would be pretty close to all-time highs. That would be the big ‘Can the market do it?’ point.”
In contrast to both Springer and Kinker, Andrew Wilkinson, chief economic strategist at Miller Tabak & Co., expects the U.S. economy to strengthen next year. “I’m probably at odds with a lot of people that just see tepid recovery,” he says. “As the U.S. economy builds steam, you’re going to see a change in interest rate expectations. My big trade for the New Year is a central bank trade which would be to play calendar spreads on Eurodollars and Euribors.”
Wilkinson expects that opportunity to develop as the growth differential widens dramatically between an austerity bitten Eurozone and a slowly recovering United States. “While the FOMC probably is quite a ways from taking away the punch bowl, I feel there’s a very good opportunity for interest rate markets to run the Fed’s thought process and for the yield curve to steepen,” he says. “The Fed’s main unemployment objective is still probably three years away, but if the trend turns favorable, you’re going to see investors react negatively in yield terms to incrementally higher payroll reports.”
Given that, Wilkinson is touting a calendar spread with four legs: Long the near expiration and short the further out expiration in Eurodollars; short the near expiration and long the further out expiration on the Euribor curve.
In currencies, Trevisani says 2012 presented a trading environment not encountered before in foreign exchange. “There’s been a fair amount of price volatility, but there is absolutely no trend. If you look at where we were at the beginning of the year compared to now, there’s been almost no change,” he says. “I expect that to continue if there are no surprise central bank moves.”
He expects the Australian dollar to outperform other currencies, mostly because of expectations for growth to continue in China and the risk-on paradigm to continue. “The opportunities for the first quarter or so are in the Australian dollar and those types of currencies,” he says. “China has new rulers that appear to be willing to spend money to keep things rolling for a bit. Even if you don’t get recovery in the rest of the world, certainly for the first couple of quarters the Chinese will keep things rolling, as long as they have enough money to do it.”
Trevisani expects the Aussie to strengthen through the first quarter and maybe into the second quarter. His price target in the AUD/USD is 1.08-1.10, and is his top play for the first six months of 2013.