Europe's Plight Chills Year-End Market Predictions

Traditionally, the holiday season brings good tidings for the stock market, too. There’s even something called “the Santa rally,” we learned from this Wall Street Journal article. Neat! But this year, with trouble on the European front and the ongoing recession (yes, that reads “recession”) at home, there may be less to look forward to, or so market forecasters fear. –KA

The Wall Street Journal:

In recent weeks, Europe’s debt problems have overshadowed some of the best U.S. economic reports. Corporate earnings that mostly beat forecasts have done little to lift stocks.

“My outlook for a year-end rally is not as favorable as it was a month ago,” said Peter Coleman, director of research for JMP Securities. “The sad thing is, the underlying fundamentals and the things that should be driving the market haven’t really changed. If anything, they’ve gotten incrementally better. But the big unknown is Europe.”

The Dow Jones Industrial Average fell 4.8% for the holiday-shortened week, posting its worst Thanksgiving week since markets began observing the holiday in 1942. Currently, the S&P 500 trades just under 1159, down from a recent closing high of 1285.09 in late October.

Strategists at 12 of Wall Street’s leading financial firms, on average, expect the S&P 500 to end 2011 at 1278, according to Birinyi Associates, or more than 10% above current levels.

At the beginning of 2011, these strategists were anticipating a year-end target of 1365.

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