New Year, Same Problem

Apple (AAPL Quote - Cramer on AAPL - Stock Picks) is expected to be one of the early tech winners of 2008, as shares closed out the previous year near all-time highs for the company. Additionally, Apple is expected to unveil new products, including a long-rumored ultrathin flash memory computer, at its MacWorld Conference in January.

On the flip side, financials and homebuilders are the two sectors analysts want to avoid, just as they did during the latter half of 2007.

"Clearly, financials are oversold, but it's not an area I'd want to be in," said Mendelsohn. "It's for speculators. There's very little in the banking and brokerage areas that are attractive. There's also nothing in the homebuilding area I'd be looking at."

The second half of 2008 is harder to predict, as many feel the market's direction hinges on the outcome of the presidential election in November.

Should a Democrat take over the White House, there could be some concern with regard to the health care sector's performance. On the other hand, if Republicans maintain control, then defense and aerospace stocks, such as Halliburton (HAL Quote - Cramer on HAL - Stock Picks), Boeing (BA Quote - Cramer on BA - Stock Picks) and Lockheed-Martin (LMT Quote - Cramer on LMT - Stock Picks), should continue to thrive.

One thing that all can agree on is that financials and their potential recovery will be the big story of 2008.

"Financial stocks are a big component of the large-cap value category and will be a wild card next year," says Sheldon. "While they may rebound from oversold conditions, I don't see the fundamentals supporting the earnings growth necessary to get a sustainable recovery until late next year at the earliest."

If the overall market is to advance in 2008, it might very well need participation of the financials. The question is whether they'll go along.

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