Stocks to climb wall of worry, resume advance and outperform bonds in 2012, TD Waterhouse predicts
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TORONTO, Dec. 15, 2011 /CNW/ - TD Waterhouse today released its 2012 Investment Outlook, predicting that stocks will resume their advance in 2012 and outperform bonds.
"Despite a year of economic difficulties in Europe, I'm confident the stock markets will advance in 2012," says Bob Gorman, Chief Portfolio Strategist, TD Waterhouse. "We will likely be in a relatively low growth, low inflation environment that should favour large cap stocks, which generate a good part of total return from substantial, rising dividends."
Gorman states that the following six themes will likely dominate the financial markets in 2012:
U.S. Stock Market
1. U.S. stocks should move higher again in 2012, despite the macroeconomic headwinds they continue to face, including: the European sovereign debt crisis, the American federal deficit, the ongoing potential for a double-dip recession and problematic U.S. housing and commercial real estate.
Positive factors for the U.S. stock market in 2012 remain similar to those cited for 2011:
In summary, we expect U.S. stocks to rise in line with earnings growth and record a high-single digit return in 2012.
2. U.S. large caps should outperform for a second successive year.
Canadian Stock Market
3. Canadian stocks should resume their advance in 2012.
Canadian Bond Market
4. Bond returns should be modest in 2012, likely in the 1-3% range.
Major Foreign Stock Markets
5. Northern Europe should again be the best region among major international markets.
Emerging Markets
6. Emerging markets will likely see improved results in 2012.
2011 Predictions and Results
Much of 2011 was characterized by a tug of war between macroeconomic concerns - chiefly in Europe, the U.S. and China - and positive corporate fundamentals. Here is what transpired in 2011, and why.
Prediction No. 1:
U.S. equity markets would advance for a third successive year and the
S&P 500 Index would record a low-double digit advance.
Result:
While four factors unfolded as expected: (1) the U.S. avoided a
double-dip recession and deflation, (2) valuations were reasonable, (3)
monetary policy was accommodative with short-term interest rates around
zero and (4) corporate balance sheets and mergers/acquisitions were
strong, the political environment was unexpectedly toxic, exemplified
by the debt limit debate. After approaching our target return by late
April, stocks weakened over the balance of the year, chiefly on
concerns about Europe.
At the time of writing, the S&P 500 was little changed for the year, below forecast.
Prediction No. 2:
U.S. large cap stocks would outperform smaller companies' shares.
Result:
After a decade-long period in which small caps had out-performed their
larger cousins, a large valuation gap had emerged and we anticipated a
rotation of market leadership from the small companies to the large.
This was very pronounced, with large caps outperforming by a wide
margin.
Prediction No. 3:
The S&P/TSX Composite would rise for a third successive year and
register a high-single digit return.
Result:
As in the U.S., the index approached its target in the spring, then
declined on concerns surrounding Europe and possible recession, and was
in negative territory as year-end approached.
Prediction No. 4:
Bonds would generate modest returns of up to 3%, with corporate issues
outperforming government bonds.
Result:
Investors' flight to safety pushed bond returns ahead of forecast, with
corporate and government issues posting similar returns.
Prediction No. 5:
Northern Europe would lead the major international markets and record an
upper-single digit advance.
Result:
While the large cap, northern European consumer companies fared quite
well, the financial and energy sectors lagged. At the time of writing,
the indices were below forecast.
Prediction No. 6:
China would be the best-performing of the major emerging markets, which
would post upper-single digit returns.
Result:
China was the best performer in a dismal group, which recorded negative
returns for the year.
About TD Bank Group
The Toronto-Dominion Bank and its subsidiaries are collectively known as
TD Bank Group (TD). TD is the sixth largest bank in North America by
branches and serves approximately 20.5 million customers in four key
businesses operating in a number of locations in key financial centres
around the globe: Canadian Personal and Commercial Banking, including
TD Canada Trust, TD Insurance, and TD Auto Finance Canada; Wealth
Management, including TD Waterhouse and an investment in TD Ameritrade;
U.S. Personal and Commercial Banking, including TD Bank, America's Most
Convenient Bank, and TD Auto Finance U.S.; and Wholesale Banking,
including TD Securities. TD also ranks among the world's leading online
financial services firms, with more than 7.5 million online customers.
TD had CDN$686 billion in assets on October 31, 2011. The
Toronto-Dominion Bank trades under the symbol "TD" on the Toronto and
New York Stock Exchanges.
About TD Waterhouse
TD Waterhouse represents the products and services offered by TD
Waterhouse Canada Inc. (Member - Canadian Investor Protection Fund), TD
Waterhouse Private Investment Counsel Inc., TD Waterhouse Insurance
Services Inc., TD Waterhouse Private Banking (offered by The
Toronto-Dominion Bank) and TD Waterhouse Private Trust (offered by The
Canada Trust Company).