This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

How the Second Half of 2012 Will Play Out (Hint: Ugly), and Where to Invest

By Jay Pelosky

NEW YORK ( Minyanville) -- Investing is, in large part, deciding when, where, and how to take risk and get paid for it.

The post 2008 risk-taking environment has been uncertain at best, an environment mirrored in 2012. Government intervention, asset price fluctuation, and sub-par global economic growth have combined to shrink trading volumes and increase volatility across assets. Within a long-term portfolio, tactical decision-making has assumed greater importance. Taken together, these effects have led investors on a search for the Holy Grail of investing: high single digit returns with low volatility.

While there is no halftime in investing, we approach the second half of 2012 and investing conditions look ugly.

Europe remains a mess, emerging markets suffer stagflation, commodity investors question the super cycle, equities soar then swoon, and bond yields shrink in safe havens while rising in ever-wider parts of Europe. US financial assets: the dollar, Treasuries and equities, have remained safe havens leading to significant outperformance. Through May, US equities have outperformed the rest of the world by roughly 800 bps and emerging market equities by 500 bps.

Here is how I see the second half playing out.

More from Minyanville
Five Macro Themes and Three Investment Ideas for 2012
Schadenfreude is a German Word
Think Like Groucho Marx, and Four Other Tips for Avoiding the Next Facebook

European outcomes remain polarized between closer integration and dissolution. Greece is effectively discounted with very little private sector money involved; its risk now resides in an exit from the euro and what that might mean for Spanish euros, Italian euros and the rest of Europe. Spain is likely to need a bailout soon while Germany continues to resist spending more money. Germany remains Europe's lead actor and what it desires is a weak currency within a large trading bloc, suggesting that at some point it will do as the others wish. Market pressures have risen sharply; ECB and perhaps IMF action could be imminent. One thing is certain: The longer the brinkmanship between the ECB and Europe's politicians lasts, the weaker European growth will be -- not only in 2012, but in 2013 and beyond.

A principal question for investors is whether US equity performance is sustainable in the second half. I have my doubts. The main US equity risk for 2012 remains earnings driven. With second half S&P earnings forecast to grow 12% y/y and 2013 earnings forecast to grow another 10% there is more than ample room for earnings disappointments. Investors and analysts tend to focus their thinking toward the out year once June and Q2 earnings come through. Earnings have been key to maintaining equity price levels - that support will be called into question in the second half.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.99 0.00%
FB $102.01 0.00%
GOOG $682.40 0.00%
TSLA $151.04 0.00%
YHOO $27.04 0.00%


Chart of I:DJI
DOW 15,973.84 +313.66 2.00%
S&P 500 1,864.78 +35.70 1.95%
NASDAQ 4,337.5120 +70.6750 1.66%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs