BOSTON -- In today’s uncertain financial environment, stock mutual fund managers acknowledge there’s reason for investors to be unusually cautious in making any short-term moves. But they remain optimistic that there will be significant rewards for staying invested in stocks. They expect the market to climb in 2013, although the gain is likely to be more modest than this year’s 15 percent return in the Standard & Poor’s 500 index through Thursday.
The reason for their optimism is that corporate profits remain strong. They say that’s the key factor in assessing the outlook for stocks, rather than the plodding economic recovery, political battles in Washington or the gloomy outlook of consumers.
Earnings have recently grown at a much slower pace than in 2011. But they’re still increasing, with Wall Street analysts expecting growth of about 9.9 percent in 2013 on average, says a survey by FactSet.
"The bright spot in this slow economic recovery has been corporate profits," says Mike McGarr, co-manager of Becker Value Equity fund. He expects stocks to deliver "reasonably good results, although we’ve been steering people’s expectations down lately."
Stocks remain modestly inexpensive, based on their price-earnings ratios -- a measure that shows investors how much they’re paying for a dollar in earnings. The S&P 500 recently has traded at around 14 times the amount that companies earned per share over the past 12 months. That’s below the 10-year average of about 15.
That’s a key indicator that stocks might climb higher.