In the midst of major elections from Greece to the U.S., and with markets locked in a narrow trading range, now is not the time to swing for the fences but to stay balanced, according to David Darst, the chief investment strategist at Morgan Stanley Smith Barney.           

In his outlook for the second half of 2012, Darst said he and his team have been telling financial advisors and clients not to emulate Alex Rodriguez, the Yankee star who tied baseball legend Lou Gehrig’s all-time record for most career grand slam home runs (23) with another blast Tuesday night in a come-from-behind 6-4 victory in Atlanta.

“Stay balanced and move in baby steps. This is a time to work in measured steps,” he said. “This is not a time to swing for the fences.

His team has a much more cautious view of the performance of the S&P 500, calling for year-over-year growth of 2.7% in 2012, well below the 8.2% consensus expectation on Wall Street.

But they are also not unduly gloomy, calling for GDP growth in the US of 2.2% this year and 2.1% next, with CPI inflation at a modest 2.4% this year and just 1.7% next year.

For strategic investments, Darst recommends 5% in cash, 37% in global bonds and 35% in global equities, plus another 23% in alternatives or absolute return investments. The tactical, shorter-term portfolios can keep 7% of cash on hand, with 33% in global equities.

He had several advisements and predictions for the second half of the year.

Within equities, he directed advisors and investors to stocks he calls “global gorillas” – large cap, particularly high-quality companies selling to consumers all over the world.

His favorites in tech include Apple, Oracle and Microsoft; health care picks include Pfizer, Abbot Labs, Johnson & Johnson, Novartis, and top consumer staples selections include P&G, Colgate, Pepsi, Coca-Cola and McDonald’s. 

“They sell to markets which are heavily exposed to the growth dynamic,” he said, adding that no matter how attractive a company’s end-market, investors should stick to those with strong management, good diversification and healthy balance sheets.

Regarding interest rates, his team expects that markets will see a “saucer-shaped bottom” because of the change in demand. He noted that the big buyers of Treasuries have long been “the two Fs” – the Fed and foreigners, notably China. He believes this will diminish, allowing prices to come down and rates to rise.

Darst said the markets will continue to have a cyclical bias, oscillating in a trading range between “risk-on” bull runs and “risk-off” bear runs. In addition, he also believes that markets will not begin a long-term bull market run like the ones stretching through the 1940s, 50s and 60s and from 1982-2000 until several drivers are in place.

These drivers include cheaper stock prices – he said that valuations are “moderate” now, but not “screamingly compelling” – as well as structural reform.

Finally, he said markets need a clear signal from voters all over the world to politicians “encouraging them to do things that are confidence-building, job-creating and everything will flow from that: profits, consumer confidence and better markets.”

Elizabeth Wine writes for On Wall Street.