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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 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 MarketWatch.com.
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.
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News and Related Story Links:
Stocks Are Rallying, But Are Investors Too Bullish?
U.S. stocks rally to fresh two-year highs.
Stock market optimism raises prospect of pullback; Two years of advances build up high expectations for 2011.
- Money Morning "Outlook 2011" Economic Forecast Series:
Stock Market Forecast: Tech, Energy, Commodities and Gold Are Top Plays For 2011.
- The Money Map Report: