New Year, New High Hopes for Stocks | Elliott Wave International

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New Year, New High Hopes for Stocks
Except, when have we heard that before?

By Vadim Pokhlebkin
Tue, 03 Jan 2012 18:30:00 ET

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You can probably relate: Every year, come January 1, I just can't help but feel that "every little thing is gonna be all right," as Bob Marley sang.

This year, the mainstream financial community is sharing the same sentiment. Here's how our own December 30 Short Term Update summarized it [emphasis added]:

At its conclusion, 2011 was marked by back-and-forth stock swings that resulted in essentially a flat market. My Bloomberg screen shows that the DJIA ended up 5.53% for the year, the S&P was flat...while the NASDAQ was down 1.80%. The broadest aggregate measure of stock market performance, the DJ Wilshire 5000, which includes nearly all stocks that trade, ended 2011 down 1%.

The Dow's action masks a strongly negative stock market performance overseas. For instance, in U.S. dollar terms, the Euro Stoxx 50 Index was down nearly 20% in 2011, with the FTSE down almost 6%, the French CAC off almost 20% and the German DAX down over 17%. Asian markets were also hit hard. The S&P Asia 50 lost over 15%, the Nikkei declined 13%, the Hang Seng was off 20%, the Shanghai Composite ended 2011 down over 18%, while Australia was lower by 14%. All were down in euro terms, too.

But not to worry: a recent USA Today article notes that a "quick survey of New Year's prognostications from investment strategists suggests stocks might deliver the double-digit gains that they have put up, on average, over the long term. A snapshot of 2012 year-end-price targets from five firms shows an average gain of 10.5% for stocks."

Very optimistic, indeed!

Except, when have we heard that kind of talk before?

Continues our December 30 Short Term Update:

The "10.5%" forecasted gains for the coming year is interesting because it is almost exactly the average forecasted gains for stocks for 2011, as the subheading in the following Barron's cover story from December 2010 shows.

That's right. A year ago, forecasts for stocks in 2011 were just as optimistic as they are now for 2012 -- and largely for the same reasons: improving economy, recovering real estate and jobs markets, and a host of other "better fundamentals."

From an Elliott wave perspective, the reason 2011 mainstream financial forecasts fell flat was simple: Stocks don't follow the economy. It's the other way around: The economy follows stocks. (If you don't believe it, see several reports in our free Club EWI that prove this crucial point.)

In the end, if you want to know what stocks will do in 2012, you need to look at different indicators from what the mainstream financial media shows you.

Start the year off right -- save 24% now via this risk-free offer to read our original market insights today >>

Tags: Dow Jones Industrial Average (DJIA), market forecasts, Nasdaq Composite, S&P 500, sentiment, unemployment

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The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading and investing decisions.