After the 2012 Santa Claus rally and the celebratory mood brought on by the American Taxpayer Relief Act (ATRA), investors on Wall Street are anticipating another wave of optimism for 2013. A positive sentiment on the United States housing market recovery is leading investors to forecast significant gains by the major stock indices. A recent article published by financial news network CNBC offered a glimpse into this optimism as expressed by various economists and analysts. The overall sentiment is that Wall Street is poised to see handsome profits in 2013, and the housing market recovery will be the catalyst for these gains. An economist at Deutsche Bank explained that evidence of a housing recovery was made clear in 2012. The interrelation of the real estate sectors with others such as auto sales and employment is very likely to boost confidence in the equities markets. An equities strategist at the same investment bank called for the S&P 500 to reach the 1,575 mark later this year thanks to optimism in the housing sector. The evidence is in the solid performance by Real Estate Investment Trusts (REITs), both in the U.S. and abroad. According to figures compiled by Prudential Real Estate Investors, shareholders of American REITs enjoyed 18 percent profits last year. Global REITs performed even better in 2012 with 24 percent growth passed on to investors. The rationale behind this performance is simple: Demand for housing in the U.S. is gradually increasing, and the corresponding supply is rushing to keep up. Prudential also called for healthy growth of the S&P 500 by 16 percent this year. A Possible Bearish Outlook
Deutsche Bank analysts also recommend hedges in case the bullish forecasts fail to materialize this year. A negative scenario would be a breakdown between Congress and the White House with regard to the ongoing debt ceiling debate. Another warning came from Prudential Annuities, which reminds investors that the record-low mortgage rates are a product of monetary policy by the Federal Reserve Bank. Should the Fed's position reverse in 2013, the housing recovery would lose steam and the bullish sentiment would subside.