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

[Editor's Note: Retired hedge-fund manager R. Shah Gilani recently issued his stock-market forecast for the New Year as part of Money Morning's "Outlook 2011" economic-forecast series. For that full strategy, please click here.]

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."

That sentiment carried the day yesterday. The S&P 500 advanced 14.25 points, or 1.13%, to close at 1,271.89. It traded as high as 1,276.17, a 52-week high and its high-water mark for the last two years.

The Dow Jones Industrial Average advanced 93.24 points, or 0.81%, to close at 11,670.75. It traded as high as 11,711.47 - the blue-chip index's highest close since August 2008 and its biggest jump since early December.

The Nasdaq Composite Index advanced 1.46%.

This surge is fostering a lot of bullishness. The S&P 500 is likely to climb 10% in 2011. The surge could be even greater than that should profit projections start to exceed the $85 target for this year and $90 target for 2012, Marc Pado, a U.S. market strategist at Cantor Fitzgerald, told

The estimated earnings growth rate for the S&P 500 for the final quarter of 2010 is 32%, says Thomson Reuters analyst John Butters.

But here's the problem.

Cantor Fitzgerald's Pado - as well as Standard & Poor's Equity Research Chief Investment Strategist Sam Stovall - remain upbeat about the market's prospects. But they also note that this exceptional bullishness is accompanied by very little investor fear - which substantially increases the risk for a market pullback.

"We expect to extend the rally in the first weeks of January, but then go through a much needed pullback in late winter," Pado says.

To find out how to best handle that risk - and to maximize your profits in the New Year - check out Money Morning's just-published 2011 stock-market forecast.

And if you find that's the kind of market intelligence that you not only need, but demand, then take the time to check out our affiliated monthly newsletter, The Money Map Report, which contains the best ideas from the global-investing gurus who operate our affiliated investment advisory services.

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