Believe it or not, by June 2011 the U.S. economy officially will have been in recovery mode for two years, according to economic experts. As with any anniversary, this second year mark has prompted investment experts to contemplate where we stand and to ponder where we are heading. Post-recession, the rallying cry was that the rules had changed and traditional market behavior was no longer the rule. We were in new territory, experts said, with little in the way of past experience to guide us. As we pass the 24-month mark, what have we learned? Are we any better at navigating this new investment environment?

Not surprisingly, investment pros have a variety of opinions on the subject. Here, in broad strokes, are some of the talking points.

• According to data collected by the National Bureau of Economic Research (the organization that tracks U.S. economic cycles) corporate profits have surged, credit lines are available and the gross domestic product has increased slowly since June 2009.  Despite the bureau’s assessment, many investors remain skeptical of an economic recovery because they have not seen much improvement – probably because the statistics that affect them most directly, like unemployment figures and house prices, have not changed much over the past two years. The nation’s $1.5 trillion budget deficit also brings little comfort.
• All investments carry risks. They always have. Despite the naysayers who are concerned about the slow rate of economic growth, many investment pros see opportunities in today’s outlook for those who are prepared to diversify across a broad investment spectrum. The experts suggest that individual investors pay special attention to the composition of their portfolios. Smart investors protect themselves through diversification. Analysts traditionally suggest that investors don’t put all their eggs in one basket. In today’s investment climate, this advice is more important than ever. It means avoiding major concentrations in stock and commodities that are similar, and studying the returns of various mutual funds to look for those that are beating major market benchmarks like the Standard & Poor’s 500.
• Despite economic concerns, stock prices are more expensive than they have been since 2007 – just before the most recent bear market began. Some analysts attribute such high price-to-earnings ratios to the excellent results many companies posted in their first quarter earnings reports. Some wonder if stocks will hold their current valuations and help lift the economy. Others fret that a market correction (downturn) is on the horizon.
• Some analysts look to the technology sector to deliver. Driven by the growth of mobile computing, earnings are predicted to remain strong into the second quarter of the year and beyond. Analysts also like the fact that many of the technology industry leaders are cash-rich and primed to make acquisitions and pay out higher dividends.
• Global conditions – a slow-down in China’s growth, the devastating tsunami in Japan and its impact on the technology and auto industries, fiscal problems throughout Europe, and the ongoing threat to oil supplies created by the turmoil in the Middle East – weigh heavily on the minds of analysts and individual investors. Despite this, there is some optimism. History suggests we should not worry too much about unexpected geopolitical issues. Unanticipated events such as natural disasters, armed conflicts and turmoil in overseas economies usually cause U.S. markets to stutter, but historically they have not had long-lasting impact on the U.S. stock market.

Stock market analysis is notoriously fickle. The points above are intended as discussion ideas only, and are not intended to substitute for professional advice from tax and investment professionals.