Surprise No. 10: Despite the advance in the U.S. stock market, high-beta stocks underperform. Though counterintuitive within the framework of a new bull-market leg, the market's lowfliers (low multiple, slower growth) become market highfliers, as their P/E ratios expand. With the exception of Apple ( AAPL), the highfliers -- Priceline ( PCLN), Baidu ( BIDU), Google ( GOOG), Amazon ( AMZN) and the like -- disappoint. Apple's share price rises above $550, however, based on continued above-consensus volume growth in the iPhone and iPad. Profit forecasts for 2012 rise to $45 a share (up 60%). In the second quarter, Apple pays a $20-a-share special cash dividend, introduces a regular $1.25-a-share quarterly dividend and splits its shares 10-1. Apple becomes the AT&T ( T) of a previous investing generation, a stock now owned by this generation's widows and orphans. Strategy: Long Apple (common and calls).Surprise No. 11: Mutual fund inflows return in force. With confidence renewed, domestic equity inflows begin to pour into equity mutual funds by midyear and approach a $100 billion seasonally adjusted annual rate by fourth quarter 2012. The share prices of T. Rowe Price ( TROW) and Franklin Resources ( BEN) double. Strategy: Long Legg Mason (LM), T. Rowe Price and Franklin Resources.Surprise No. 12: We'll see merger mania. Cheap money, low valuations and rising confidence are the troika of factors that contribute to 2012 becoming one of the biggest years ever for mergers and takeovers. Canadian companies are particularly active in acquiring U.S. assets. Canada's Manulife ( MFC) acquires life insurer Lincoln National ( LNC), two large banks join a bidding war for E*Trade ( ETFC), and International Flavors & Fragrances ( IFF) and Kellogg ( K) are both acquired by non-U.S. entities. Finally, a Canadian bank acquires SunTrust ( STI). Strategy: Long E*Trade, Lincoln National, International Flavors & Fragrances, Kellogg and SunTrust.Surprise No. 13: The ETF bubble explodes. There are currently about 1,400 ETFs. During 2012, numerous ETFs fail to track and one-third of the current ETFs are forced to close. There are several flash crashes of ETFs listed on the exchanges. The ETF landscape is littered by investor litigation as investor losses mount. New stringent maintenance rules and new offering restrictions are imposed upon the ETF business. The formation of leveraged ETFs is materially restricted by the SEC. (Hat tip to Barry Ritholtz'sBig Picture.) Strategy: Avoid all but the largest ETFs.Surprise No. 14: China has a soft landing (despite indigestion in the property market), and India has a hard landing. India becomes the emerging-market concern. With India's trade not a driver to GDP growth, its currency in free-fall, pressure to keep interest rates high by its central bank and signs of a contraction in October Industrial Output, India's GDP falls to mid-single-digit levels. Strategy: Long iShares FTSE/Xinhua China 25 Index Fund (FXI); short WisdomTree India Earnings Fund ETF (EPI) and iPath MSCI India Index ETN (INP).Surprise No. 15: Israel Attacks Iran. The greatest headwind to the world's equity markets is geopolitical, not economic. Israel attacks Iran in the spring, but, at the outset, the U.S. stays out of the conflict. Iran closes the Strait of Hormuz, and oil prices spike to $125 a barrel. Strategy: Buy Schlumberger (SLB), ExxonMobil (XOM) and other oil production and exploration stocks.