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Business

January 4, 2012

What does 2012 investment landscape look like?

As an investor, you know that 2011 was a somewhat "choppy" year, with the financial markets going through many ups and downs. So what can you expect in 2012?

As baseball hall of famer Yogi Berra is quoted as saying: "It's hard to make predictions — especially about the future." And these words are certainly applicable for anyone who would like an accurate forecast of the investment climate.

Yet we do know of some factors that may affect your portfolio in the months ahead. Here are a few of them:

Strong business fundamentals: This past year, all the noise about the debt ceiling debate, the size of the U.S. deficit and the European financial situation tended to drown out some fairly good news: U.S. businesses' balance sheets were strong for the most part, borrowing costs remained low, and corporate profits were good — and corporate profitability remains a key driver of stock prices. Heading into 2012, these fundamentals continue to look positive, which may bode well for investors.

Europe's debt crisis: Greece's economic problems made a lot of news in 2011, but they weren't the end of the story in Europe, as Italy, Spain, Portugal and Ireland also face major financial difficulties. It's by no means clear how these problems will be resolved, so don't be surprised to see them lead to intermittent, if short-lived, shocks to the markets.

Election-year patterns: As you're well aware, we're voting for president in 2012. But you might be surprised to learn that the S&P 500 index has shown negative returns in only three of the last 21 presidential election years. Coincidence? No one can say for sure — and at this point, no one can say if this pattern of positive returns will continue during this election year. Still, it's an interesting phenomenon.

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