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Market Update

2011 Earnings Off to a Strong Start, but Will it Last?

Earnings season is well underway and the trend so far has been mostly positive. But as 2011 progresses, companies will be less and less likely to meet – much less surpass – Wall Street's lofty expectations.

That's because high unemployment, tight credit, an inability to further reduce cost structure and less favorable comparisons to 2010 will conspire to trip up the less nimble corporations.

Indeed, any sustained improvement in spending will depend largely on a significant reduction in the unemployment rate. And even the U.S. Federal Reserve doesn't believe the jobless rate will fall below 8% within the next two years.

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Shipping Prices Sink as Mining Companies Rack Up Record Profits

As big mining companies are set to book record profits the shipping companies that deliver the precious raw materials are plagued with the lowest freight rates since 2002.

Average leasing costs for capesizes, the 1,000-foot-long ships hauling iron ore and coal, will drop 34% to $22,000 a day this year, according to a Bloomberg News survey of eight fund managers and analysts.

When prices last plummeted that low, China's economy, the biggest consumer of the minerals used in steel and power, was 75% smaller and the benchmark Standard & Poor's GSCI commodity index stood 67% lower, Bloomberg reported.

This time, the problem isn't a potential economic meltdown, which caused shipping prices to tank in 2008-2009, but a glut of new capacity coming to the world's shipping lanes.

About 200 capesizes, spanning some 35 miles end-to-end, will leave shipyards this year, expanding the fleet by 18%, the Bloomberg survey showed.

While Clarksons PLC, the world's biggest shipbroker, expects seaborne trade in iron ore and coal cargoes to surpass 2 billion metric tons for the first time this year, the 7% increase won't be enough to overcome the glut.

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Investing Strategies 2011: Moves to Make After U.S. Stocks Hit a Two-Year High on the First Trading Day of the New Year

U.S. stocks soared on the first trading session of the New Year yesterday (Monday), and major market indices hit two-year highs after upbeat reports on construction and manufacturing boosted optimism for a continued U.S. economic recovery.

The jump in stock prices represents a continuation of investor bullishness that led to the U.S. Standard & Poor's 500 Index posting its best December performance in 19 years.

"The optimism at the end of 2010 continues into 2011," Kevin Giddis, a fixed-income expert at Morgan Keegan, wrote in a research note. "Investors, including me, hope that 2011 will be a better year for earnings, confidence, housing and jobs."

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Your 2011 Stock Market Leaders

Stocks drifted quietly in the past week, seemingly satisfied with the status quo and in no hurry to get to their next destination. The Dow Jones Industrial Average, Standard & Poor's 500 Index and Nasdaq Composite Index all clocked in tandem for a loss or gain of +0.1% to -0.1%.

Overseas stocks were the only major winners, with developed markets outside the United States up 1.4% and emerging markets up 2.2%.

Looking back at all of 2010, here are a few stats that stick out:

To find out which stocks will lead the market higher in 2011, read on...

China Auto Market Will Continue to Drive Sales for Western Manufacturers in 2011

The world's largest carmakers, including Toyota Motor Corp. (NYSE ADR: TM), General Motors Co. (NYSE: GM) and Volkswagen AG, expect China's red-hot economy to keep auto sales rolling at a record pace in 2011, making it the third year in a row the Red Dragon will top the U.S. in car sales.

China's vehicle sales jumped 46% in 2009, dethroning the United States as the world's largest auto market and ending more than a century of American dominance that started with the Model T Ford.

The nation's sales of passenger cars, buses and trucks rose to 13.6 million in 2009, the fastest pace in at least 10 years, according to the China Association of Automobile Manufacturers. At the same time, U.S. sales tumbled 21% to 10.4 million, the lowest level since 1982, according to Autodata Corp.

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No Holiday Cheer for Best Buy (NYSE: BBY) as Online Retailers Steal the Joy

The highlight of the week before Christmas, from a stock market point of view, is always the third-quarter earnings report of electronics retailer Best Buy Co. Inc. (NYSE: BBY). It's a tradition almost as old as St. Nick, and since the mid-2000s usually covered in just as much red.

Back during the 1990s, BBY was the alpha dog of retail stocks. In a period of fantastic strength in tech stocks, BBY was every bit their equal, rising more than 1,000% from 1997 to 2000 by promoting the digital good life.

Those were the days, huh?

But as you could see in its report and guidance last Tuesday, the technology-driven big box retailer from Minneapolis is now just a shadow of its former self, disappointing again with a 5% decline in same-store sales and offering weak guidance. The saddest part was that the market didn't even care. Investors of other retailing stocks basically just averted their gaze.

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Mobile Banking: Why VeriFone Systems Inc. (NYSE: PAY) is Positioned to Win

With the emergence of handset-driven e-commerce technology, banks, mobile-phone sellers and telecom-service providers are working feverishly to cook up a profitable recipe for the fast-growing mobile-banking business.

But with so many players setting up shop – and so many potential new mobile-payment services on the menu – the safest profit play for investors may be the one that's able to deliver all these services to end-users.

And we've identified a clear early leader.

For insight on the early leader in this new market, please read on...

Miracle on Wall Street: Will a "Santa Claus Rally" Bring Christmas Cheer to Investors?

Seasonal market indicators are often spotty, but the so-called "Santa Claus rally" has some solid statistical backing.

The Santa Claus rally lacks a concrete definition, but the gist of the theory is that stocks perform well in December – particularly in the period between Christmas and the first days of the New Year.

Indeed, December traditionally has been the best month for U.S. stocks. The Standard & Poor's 500 Index has posted positive returns in December 77% of the time since World War II, compared to 59% for all 12 months.

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Asia's Surging Economic Growth Pushes Global IPO Market to Record High That Will Continue in 2011

Despite market volatility and a shaky economic recovery, the global initial public offering (IPO) market for 2010 is on track to hit a record high – and 2011 is poised to continue the hot streak.

A study by accounting group Ernst & Young yesterday (Wednesday) showed that funds raised through global IPOs are expected to surpass $300 billion in 2010, topping the 2007 record of $295 billion. IPOs in the first 11 months of the year collected $255.3 billion in 1,199 deals.

"New IPO filings continue to increase around the world and a large backlog has built up as companies await greater macroeconomic stability," said Gregory Ericksen, Ernst & Young's global vice chair for strategic growth markets. "We expect the current IPO momentum to continue its upward trend in 2011."

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Obama Now Must Rally Democrats to Seal Tax Deal With GOP

President Barack Obama on Monday struck a deal with Republicans to extend the Bush-era tax cuts and federal unemployment insurance as well as a host of other tax breaks, but now he faces an uphill battle to convince reluctant members of his own party to go along.

Ignoring Democratic opposition, President Obama agreed to the compromise package, which cuts taxes on businesses in an effort to help the economy recover.

The deal capped weeks of negotiations between leaders in Congress and an administration team led by U.S. Treasury Secretary Timothy Geithner. Ultimately, Obama accepted a deal that contradicts his long-held position that tax cuts should only be extended for lower and middle-class earners in exchange for a 13-month extension of jobless benefits for the long-term unemployed.

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