2013 Optimism Despite "Cliff" Uncertainty

The year has almost come to an end and (as of the morning of Dec. 18) there’s still no fiscal cliff resolution — although, the possibility of one is looking more and more likely. If a deal isn’t made by the end of the year, it could take until at least April for a final resolution, which could make for tricky investing at the beginning of the year.

However, according to its 2013 Year Ahead market outlook, Bank of America Merrill Lynch is actually pretty optimistic about the resolution of the fiscal cliff in that it doesn’t believe the U.S. will sink into another recession. In fact, the investment firm is predicting that global economic growth will pick up steam in the second half of the year. (Something Goldman Sachs is also expecting.)

Moderate investors are recommended to allocate their portfolio as 65% stocks, 33% bonds and 2% cash, according to BofA Merrill. Cautious investors could benefit from changes in the markets over the next 12 to 18 months.

“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,” Michael Hartnett, chief investment strategist at BofA Merrill Lynch Global Research, said in a statement. “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.”

Some predictions BofA Merrill made:

— The globally economy grows 3.2%

China and the U.S. will lead the global economy as it gradually improves throughout the year. BofA Merrill is expected growth to rise 2.5% in the U.S. and 8% in China.

— Fiscal austerity offsets monetary stimulus

Although the global economy should grow in 2013, the first half of the year will not be easy. BofA Merrill is expecting monetary easing by central banks will be offset by fiscal austerity in the U.S. and Europe.

— The U.S. housing recovery builds momentum

Just about everyone is expecting U.S. housing recovery to continue in 2013, with rising home prices and more housing starts. Some markets are already showing the strong momentum that will, hopefully spread to the rest of the country.