Our experts talk about what they’re buying—and avoiding—in the year ahead.

Feeling Optimistic

Anna Dopkin
Portfolio manager and co-director of equity research, North America, T. Rowe Price

While the U.S. fiscal cliff and the economic slowdown in both developed and emerging markets are a concern, there is reason for some optimism. The U.S. housing market is improving, corporate balance sheets are in good shape, and consumer confidence is improving. Valuations for U.S. stocks remain reasonable at 13 times forward earnings, and the dividend yield on the S&P 500 is higher than bank CDs and most Treasuries. Given that many market participants remain equity-cautious, any material good news is likely to be well received.

Our experts talk about what they’re buying—and avoiding—in the year ahead.

Feeling Optimistic

Anna Dopkin
Portfolio manager and co-director of equity research, North America, T. Rowe Price

While the U.S. fiscal cliff and the economic slowdown in both developed and emerging markets are a concern, there is reason for some optimism. The U.S. housing market is improving, corporate balance sheets are in good shape, and consumer confidence is improving. Valuations for U.S. stocks remain reasonable at 13 times forward earnings, and the dividend yield on the S&P 500 is higher than bank CDs and most Treasuries. Given that many market participants remain equity-cautious, any material good news is likely to be well received.

Market Experts' Advice for 2013

How to Play the Next Year
How to Play the Next Year

Our experts talk about what they’re buying—and avoiding—in the year ahead.

Feeling Optimistic

Anna Dopkin
Portfolio manager and co-director of equity research, North America, T. Rowe Price

While the U.S. fiscal cliff and the economic slowdown in both developed and emerging markets are a concern, there is reason for some optimism. The U.S. housing market is improving, corporate balance sheets are in good shape, and consumer confidence is improving. Valuations for U.S. stocks remain reasonable at 13 times forward earnings, and the dividend yield on the S&P 500 is higher than bank CDs and most Treasuries. Given that many market participants remain equity-cautious, any material good news is likely to be well received.

Stocks Hit a High
Stocks Hit a High

James Paulsen
Chief investment strategist, Wells Capital ­Management

I expect U.S. economic growth to rise close to 3 percent in 2013 boosted by ongoing interest rate and monetary stimulus, rising confidence, and a broadening domestic recovery firing on more cylinders than ever. I also anticipate a revival among emerging world economies, which should restart the global manufacturing recovery. Look for a new all-time high in the S&P 500 as it reaches close to 1,700 sometime during the year. Portfolios should be tilted away from bonds and toward emerging-market, industrial, materials, and financial stocks.

There’s No Safe Haven
There’s No Safe Haven

Christopher Whalen
Managing director, Carrington Investment Services

Overall I look for the U.S. economy, other than the housing sector, to grow modestly in 2013. Home prices and new construction are going to be flat because of the a) lack of credit and b) the foreclosure backlog remaining in many states, especially those that require judicial review of foreclosures, mainly the Northeast. The banking sector is going to see continued improvement in credit costs, but flat revenues and earnings due to weak loan demand and the Fed’s zero-rate policy. I like income-producing assets, which have performed very well this year thanks to the Fed. But there is no safe haven.

Japan’s a Buy
Japan’s a Buy

David Herro
Chief investment officer, international equities, Harris Associates, manager of the Oakmark ­International Fund

I think you could make a strong value argument for global equities, especially if you assume that the world continues to grow at least 3 percent to 3.5 percent, which is not a heroic assumption. Next year and beyond, clearly the emerging world still is going to propel global growth because of its rapidly growing middle class. In our view, Japan is the most undervalued of the developed markets and thus presents an investment opportunity. Even with its macro challenges, we are finding good quality businesses in Japan—companies with low valuations and improving corporate governance.

Housing Will Help
Housing Will Help

Diane Swonk
Chief economist, Mesirow Financial

We could easily see high single-digit gains in broader stock indexes. I am personally still long on equities. I am going on the assumption that our elected officials get it right, avert the fiscal cliff, and move toward credible deficit reduction. Otherwise all bets are off, and start shoving money in your mattress. Housing is definitely on the mend, with great opportunities for investors who buy houses to rent them out rather than trying to flip them in a quick sale. Remodeling is up, and spending on Sandy recovery will enhance the trend, which is a plus for building materials and housing-­related durables—appliances, carpeting, and furniture.

Buy Health Care
Buy Health Care

Barry Ritholtz
Director of equity research, Fusion IQ

We’re holding 40 percent bonds, 25 percent cash, and the balance equities. That’s a fairly defensive posture for us, and it reflects an increasing possibility of recession over the next 12 to 18 months. What will cause the next recession will be a slowdown in the post-credit crisis recovery, likely caused by self-induced austerity, the end of Fed accommodations, or even falling corporate profits. If that were to occur, history suggests that the S&P 500 could see a 25 percent to 35 percent correction. We continue to like health care, with three specific ways to gain exposure to it, ranging from conservative to aggressive: Health Care Select Sector SPDR is an ETF that holds large-cap health-care-­related names. SPDR S&P Biotech ETF holds companies of all sizes that work on new molecules, genetics, etc. Finally, you can buy in-dividual stocks such as Johnson & Johnson, Merck, Celgene, and Sanofi-Aventis.

Three Winners
Three Winners

Thomas Forester
Manager, Forester Value Fund

Expect the U.S. economy to limp along. Europe and Japan will be in recession, China slow. Wild cards will be new stimulus programs, but high debt levels constrain new stimulus. U.S. companies will find it difficult to meet top lines so will have to cut costs to make bottom lines. Markets will be up at the start of the year but down from middle to the end. I like Chevron, which has strong production in oil and liquefied natural gas. Microsoft should do quite well with new Windows 8 tablets and phones. CVS Caremark’s earnings should climb as it adds clients, and management is increasing share repurchases and dividends.

Beware a Bubble
Beware a Bubble

Doug Noland
Senior portfolio manager, Federated Prudent Bear Fund

From my credit-centric analytical perspective, I see the 2013 setup not too dissimilar to 2011 and 2012. I believe the world remains in a historic financial bubble that could either burst or become only more unwieldy. With the European crisis anything but resolved, with China increasingly fragile, and the U.S. bubble economy structure at heightened risk to somewhat tightened fiscal policy, the probabilities are not low for a surprisingly problematic year ahead.

Doing the Math
Doing the Math

Eddy Elfenbein
Editor, Crossing Wall Street ­newsletter

The math is still very much in favor of stocks. Dividends are growing and bond yields are terrible. An emergent recovery in housing is helping consumers. I like Ford because it’s on the way to duplicating its U.S. turnaround in Europe. Aflac is a very well-run company that fell because the market wildly overreacted to its exposure to Europe. Moog is a classic value play. The stock has been a laggard despite giving good earnings guidance for 2013.