Peter Switzer suggests we prepare for a market moving sideways.

While many clients think that a financial planner’s job is to be a market tipster – and we know that is only part of our job, given the importance placed on our crystal balls – here’s a bit of analysis of what lies ahead.

There are three potential investment outlooks. First, we head up nicely over the next 12 months. Second, we dive into another crash, according to the script of people like Steve Keen, associate professor of economics at the University of Western Sydney. Or third, we keep heading sideways with a bias, albeit slightly, to the upside.

(The fourth option would be a sideways trade with a downward bias, but it is basically a sideways outcome.)

The optimists, like Goldman Sachs and UBS, have pulled back their outlooks for the market for the rest of this financial year from around 5600 to 5200. That would mean around a 13 per cent gain for the rest of the year, given these predictions were made when the S&P/ASX 200 was around the 4600 mark!

Meanwhile, Ron Bewley, the founder of Woodhall Investment Research, and the former chief investment officer for CBA’s private client division, has done his numbers and sees a 20 per cent rise for the Aussie stock market for the 12 months to June. Bewley has had a good predictive record crunching his own model, based on truckloads of forecasts from company analysts.

Looking at the “market will dive” scenario, it could be triggered by a collapse of China in the next 12 months – but that’s a low-order risk. The European debt drama turning into a disaster – with the likes of Spain heading down the Greek road of being a potential defaulter – could also be a trigger. This is a live unknown, but the consensus is that this whole debt problem is manageable, and believing in the “muddle through” analysis is sensible.

Another trigger would be the US double dipping into recession – and given the latest round of economic data, this does not look far-fetched. This comes as QE2 ends.

However, the consensus here is that the slowdown in the US economy, post Japan’s troubles and in the aftermath of shocking weather in the States, will turn around in the second half of 2011. Of course, if it doesn’t, then QE3 might happen!

You have to remember that US President Barack Obama heads to the polls at the end of 2012 and history shows that in the third year of a presidency, a central bank lets the money supply run wild – that has happened – and growth happens, helping the stock market in the two years before the Yanks go to the polls.

On that basis, I expect that the US threat to stock prices will come in 2014 when the next president will have to embrace fiscal austerity, at least for two years!

This brings us to the final option of going sideways, which looks more possible for Australia’s stock market than America’s. Given the political imperative for a reasonable year or so on Wall Street, the challenge will be, can our market rise while the Australian dollar is so high against the Greenback?

In a perfect world for us, China and Europe follow the script, not causing any problems, and the USA resumes good growth with no need for QE3. The stronger looking USA leads to an interest-rate rise in late 2011 or early 2012; and the Greenback starts to rise while the Oz dollar sinks towards the mid-90 US cents-range.

In turn this helps those local companies – which have struggled with the dollar over parity with the US dollar – and this starts to close the gap between higher Australian company profits, generally, and our lagging share prices compared to Wall Street.

This has to be what the Reserve Bank believes or else it couldn’t raise interest rates the way it has.

For the sideways option to hold, the question marks over Europe and the USA remain, while China remains strong, keeping our dollar high, which will set us up for more sideways trading.

I’m hoping the perfect world option happens but I think the more imperfect, sideways outcome looks more likely.

Peter Switzer is founder of fee-for-service financial planning firm Switzer Financial Services and hosts SWITZER on Sky News Business Channel, Monday to Friday at 7pm and 10pm.