The U.S. economy may be on the road to better days but the European debt crisis and uncertainty in China will send stocks on a bumpy ride marked by heavy volatility during the first quarter, analysts say.
"The euro debt crisis continues to be on the feared side of the ledger, where markets suffer spasms of the unknowable," says John Velis, head of European capital markets research at Russell Investments, according to CNNMoney.
European leaders have managed to keep countries such as Greece from defaulting and abandoning the euro, which would send shockwaves across global financial systems.
Steps taken have included pledges to better coordinate fiscal policies to the European Central Bank's making low-cost loans more available to banks to loosen credit access.
Plus a slower Europe will mean slower demand for goods made in China, home to an economy already cooling for quite some time.
"Volatility is likely to remain elevated for at least the first several months of the year given the uncertainties surrounding the global economy," says Scott Migliori, chief investment officer at RCM, a division of Allianz Global Investors, CNNMoney adds.
Other experts, however, say investors have already priced in gloomy scenarios into their trading strategies for 2012, which leaves room to be optimistic for the coming year for U.S. stocks.
"After two years of headlines on Europe, beginning with Greece, my view is, everything about Europe is discounted except the complete collapse and disintegration of the European Union," says Bill Miller, recently retired portfolio manager at the Legg Mason Value Trust, which beat the S&P 500 for 15 consecutive years, according to the New York Times.
"Everything but the worst-case scenario is baked in. Recession? Yes. Political dysfunction? Yes. Bad austerity policies when they need to promote growth? Yes. Those are in the headlines every day and it’s priced into U.S. stocks. I'm not so sure about European stocks."
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