2010 might be described as a year of frustration and doubt for U.S. investors. It was a year of constant ups and downs, with the Standard & Poor’s 500 crossing its opening benchmark of 1115 in January 2010 more than 160 times. Worries about the economy, the job market and budget deficits abounded – and many Americans expressed their discontent by backing away from the U.S. stock market. The good news is that many investors now believe that the Government-directed recovery effort has taken root, and some key Wall Street pundits believe the stock market will rebound in 2011.
In light of last year’s market fluctuations, it is heartening to know that many investment analysts enter 2011 decidedly bullish. Here are some recent observations.
- Investors who deserted the markets and U.S. mutual funds in 2010 have created some potentially significant stock bargains for savvy investors who rode out the storms. Fortune favors the brave, and history shows us that those who abandon stocks usually fail to jump back in fast enough to leverage sharp rallies. Some analysts believe that lingering doubts still prevent individual investors from recognizing some great stock bargains. They point to examples of great earnings recently among large U.S.-based companies, buoyed by low interest rates and improving consumer confidence.
- Some experts believe that evidence the economic recovery is under way will encourage consumers and corporations to relax the tight grip on their cash. Companies that are well funded have begun to loosen their purse strings, and as a result, the manufacturing and industrial sectors are gearing up again.
- For its part, the Federal Reserve Bank remains committed to supporting asset prices; and with inflation under control, there seems little chance that the Fed will reverse its current policies.
- Undoubtedly, global economic concerns, credit policy shifts among emerging nations and geopolitical strife continue to cast a shadow. However, none of the most troublesome scenarios have materialized and it appears that Wall Street no longer expects every global issue to rattle the market. It should be noted, however, that the longer term problems threatening our economy – as well as those facing nations overseas – have not been resolved. The U.S. deficit, burgeoning debt among emerging nations and fiscal problems in Southern Europe and Ireland have not disappeared. That being said, many investment experts believe we are on the cusp of a cyclical upswing that will boost the markets throughout 2011.
- Which sectors are attracting analysts’ attention? Amongst those getting the thumbs up are:
- Consumer staples – a category that gained 10 percent during 2010 – is expected to show respectable profits. Stock prices in this sector are considered to be reasonably priced.
- Technology offers some good stock prices, and many companies are cash rich with a presence in emerging markets where Internet and smart phone use is escalating rapidly.
- Consumer discretionary stocks – especially those that appeal to increasingly frugal U.S. consumers – are also considered attractive. In this category, companies that are expanding globally (especially fast food giants) are also attracting attention.
Whatever awaits us in 2011, it is heartening to enter a new year with confidence rising and stocks climbing. The general observations outlined in this article are not intended to take the place of counsel from tax and investment professionals. Make sure to get the information and advice that suits your specific investment goals before taking any action.