The S&P 500 may end 2013 within a stone's throw of its all-time intraday high hit in 2007 on the back of an improved outlook for global growth and with an end to uncertainty surrounding the U.S. "fiscal cliff", according to a Reuters poll.
A major relief for the stock market would be the resolution of the fiscal cliff, nearly $600 billion of tax increases and spending cuts that are set to take effect in January and which could threaten to bring on a new recession.
The median forecast for the S&P 500 <.INX> <.SPX> by end of 2013 was 1,550, according to 47 respondents surveyed in the latest Reuters poll of equity strategists. That is just off the index's all-time intraday high of 1,576.09 on October 11, 2007.
By mid-2013, the S&P 500 is seen rising to 1,500, for a roughly 5 percent increase from Wednesday's close of 1428.48.
The Dow Jones industrial average <.DJI> is seen rising to 14,150 by end of 2013, climbing above 14,000 for the first time since 2007. By mid-2013, the blue chip index is seen rising to 13,631, up almost 3 percent from Wednesday's close of 13245.45.
"This time last year, the risks to global growth were to the downside as the European debt crisis, China hard landing fears and the U.S. 'fiscal cliff' clouded the economic outlook," said Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research.
"For 2013, we expect the resolution of fiscal policy issues, another year of accommodative central bank actions and improving corporate profits to skew the macro and market risks to the upside."
BofA-ML expects the S&P 500 to hit 1,600 by end-2013.
The S&P 500 has retraced all of its losses since the U.S. presidential election. Some of the gains reflect market confidence that Democrats and Republicans will eventually agree on at least a short-term deal to avoid the cliff.
Despite the resolution, many investors believe there is still a lot of work to be done in the first half of 2013. Taxes are almost certain to rise, and businesses have been less optimistic than the consumer of late due to fiscal uncertainty.
"We're going to struggle to get returns in the first half of the year, essentially taking a step back before we take a step forward as growth begins kicking in around the second half of the year," said Paul Nolte, managing director at Dearborn Partners in Chicago, whose year-end target on the S&P 500 for 2013 was 1,600.
"Trading will be volatile, even after we get the 'fiscal cliff' resolved. Right now companies are trying to figure out what the rules of the road are."
Some were more cautious. Washington in the past has taken the markets to the brink, with the debt ceiling fight in 2011 and the initial failure of a bill to aid banks in 2008 roiling stocks. If lawmakers agree to shift certain questions into 2013, that could leave investors unsettled.
"While not our base case, we believe that stocks could rise substantially if U.S. policymakers can negotiate a 'grand bargain' that credibly addresses long-term tax, spending, and entitlement reforms," said Jonathan Golub, strategist at UBS, whose target on the S&P 500 for end-2013 was just 1,425.
"Unfortunately, our sense is that the most important structural issues will be pushed off into the future, leaving significant uncertainty about the long-term direction of the economy and corporate profits."
For the year, the S&P 500 has gained almost 14 percent, the Dow is up over 8 percent and the Nasdaq has risen close to 16 percent, as of Wednesday's close.
(Reporting by Angela Moon, Chuck Mikolajczak, Ryan Vlastelica, Caroline Valetkevitch, Edward Krudy, and Leah Schnurr in New York; polling by Ashrith Doddi and Namrata Anchan; Doris Frankel in Chicago/editing by Chris Pizzey, London MPG Desk, +44 (0)207 542-4441)