Happy New Year to all traders and investors! It is this time of the year where everyone likes to predict what will happen to the markets in 2013. Over the next two weeks we will publish our predictions here at PaxForex. We will start today with one outside the forex markets and picked the S&P 500 as it is the most followed indicator worldwide and most portfolio managers peg their performance against this index in order to measure success or failure.
This is not the sophisticated measure when it comes to viewing your portfolio, but here is our prediction for this index. We will spend this week on three global stock indices while next week we will cover three major currency pairs and our prediction for those. It is natural that most predictions are very positive. The general view is that after the U.S. more or less passed a bill to limit the impact of the fiscal cliff it will also raise its debt ceiling and the markets will rally double digits. Basically the same prediction as usual and to be fair in 2012 the market surprised and rallied above 13%.
Those who enjoy those bullish calls and made them part of their new year’s resolution should stop reading here. All traders who wish to have a second opinion from across the aisle right out of the smart money camp here is your 2013 prediction for the S&P 500:
The S&P 500 closed 2012 at 1,426.19, up 168.59 points or 13.41% so where will the S&P 500 close 2013?
We expect the S&P 500 to correct by 28.5% and finish 2013 at 1,019.73. Allow a 3% margin of error which should leave the S&P 500 to close in a range between 989.14 and 1,050.32.
The global economy will enter a sharp recession this year on the back of fiscal problems in the U.S. which are nothing but resolved as well as fallout from the Eurozone debt contagion. Asia will not be able to keep the global economy out of recession. Some areas will enter a full depression which will accelerate in 2014. Traders should prepare for several years of double digit declines in global indices with isolated pockets of strength.
2013 will see a repeat of what happened in late 2008. Extreme bullishness on a global scale with total ignorance to the problems which are about to explode will lead to a three month period of sharp declines at some point in 2013.
The U.S. labor market will deteriorate once again towards the second half of the year and will not recover after this summer. The problems in the pipeline are not being resolved and the pressure builds up at an alarming rate. 2012 was an anomaly which will not be repeated in 2013. Consumer spending will collapse this year and add to recessive pressures as it accounts for over 70% of economic activity.
Stubborn bullishness usually ends up in heavy losses. Ignore the negative signs long enough and the final result will be that much more drastic. Be prepared for a wild year with heavy swings especially in Q1 as well as Q4 and trade smart.