Surprise No. 2: The 2013-2014 earnings cliff sinks the markets in 2013's first half.
- The investment narrative shifts from fiscal cliff concerns to earnings and margin cliff worries.
- Slowing economic growth and lower margins pressure corporate profits and S&P 500 earnings drop to $95-$97 a share, well below consensus.
- Real estate activity and home prices flatten out.
- Retail sales are conspicuously weak.
- The stock market puts in its yearly high in the first two weeks of January.
- A Tale of Two Cities: a down stock market in the first half and an advancing stock market in the second half.
- The S&P 500 range for year 2013 is 1275-1480 and closes the year flat (just as it did in 2011).