We Want To Hear From You: Are You Bullish or Bearish About U.S. Stocks in 2011?

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U.S. stocks have been on the march. Last year's market rally drove stocks up to levels not seen for two years – and many prognosticators believe that higher highs are still to come.

The U.S. Standard & Poor's 500 Index posted its best December performance in 19 years, and that bullish sentiment carried into the first trading day of 2011.

On Monday – the first trading day of the New Year – the S&P 500 rose more than 1.1% 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%.

"More people have joined the bullish bandwagon for 2011 because individual investors are ready to purchase stocks for the first time in a long time," said Ned Riley, chief investment strategist for Riley Asset Management.
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The latest economic reports have further buoyed investor bullishness. U.S. factory goods orders rose unexpectedly in November by 0.7%, and U.S. construction spending rose for the third consecutive month in November.

Analysts are now fanning the flames of market optimism. A CNNMoney survey of 32 investment strategists and money managers predicted an 11% climb in the S&P 500 in 2011.

"Everything seems to be in place for the stock market to rise," Steven Goldman, a Weeden & Co. market strategist, told CNNMoney. "We still have decent earnings growth and stimulative policies from the government that will help stocks keep up their performance."

Goldman Sachs Group Inc. (NYSE: GS) analyst David Kostin, who accurately predicted the S&P's 13% advance for all of 2010, expects 2011 to be even better: He sees a 15% advance in the New Year, which would take the S&P to 1,450. Predicted high profit growth and corporate balance sheets awash with more than $1 trillion in cash bolstered Kostin's bullishness.

The CNNMoney survey predicted company profits would rise 10% in 2011 and earnings per share in the S&P 500 to average just above $92 per share. The sectors collecting the most bullish attention include industrial stocks, which rose 25% in 2010, energy stocks and tech companies.

Not everyone is buying into this rose-colored outlook, however. Some observers expect a much more modest performance.

Wells Fargo Advisors' Chief Macro Strategist Gary Thayer is predicting a 3% rise in the S&P 500 next year, claiming company balance sheets aren't as healthy as people many think.

"A lot of the company balance sheets up to this point have benefited from significant cost cutting, not sustained revenue growth," said Thayer. "And we don't expect to see strong revenue growth in 2011, either."

Thayer also said if the U.S. Federal Reserve starts to tighten its monetary policy this year, the second half of 2011 could be marked by market volatility and a challenging environment for investors.

Other analysts are warning of investor fears causing occasional pullbacks, creating a rocky road to profits.

"While stocks should be boosted by good economic news flow, a variety of troubling factors…could all contribute to fairly uneven progress for the S&P 500 with a number of spikes and dips for investors to navigate," Tobias Levkovich, chief investment strategist at Citigroup Inc. (NYSE: C) wrote in a research note for clients.

This brings us to next week's Money Morning "Question of the Week:" How do you think the stock market will perform in 2011? Do you see it rising as much as 15%, or are you expecting a more-modest increase in the 3% range? Or are you bearish – and worried? Do you think the currently pervasive bullish hype is warranted? Or are investors getting overconfident, leaving themselves vulnerable for a nasty market pullback?

Send your answers to mailbag@moneymappress.com. We want to hear from you!

[Editor's Note: Is there a topic you want to see covered as a "Question of the Week" feature? Then let us know by e-mailing Money Morning at mailbag@moneymappress.com. Make sure to reference "question of the week suggestion" in the subject line.

We reserve the right to edit responses for length, grammar and clarity.

Thanks to everyone who took the time to participate – via e-mail or by posting their comments directly on the Money Morning Web site.]

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  1. jj | January 5, 2011

    Depends on what happens with inflation.If inflation soars that might cause a Dollar crash and soaring interest rates.Wouldn't be too positive for stocks if this happens.

  2. Samuel Johnson | January 5, 2011

    It is going to be a BEAR!!!!!!!!!!!!!

  3. Ron Carlson | January 6, 2011

    One has to be pessimistic about the future for the U.S. stock market given the load of debt that is on the U.S. Credit card. With the insane administration fedearl policies that have prevailed for several decades one has little justification for being bullish about the stock market. If the Republicans in the House can hold the line on fiscal responsibility, reduce government spending and most important slash government regulation, the crash may be less catastrophic than it will be if the Obama policies prevail for another 2 years. Unfortunately, if they do the right thing it may in fact occur sooner. The 2011 -2012 recession most likely will be unprecedented in world history.

  4. Pedro A Delgado | January 6, 2011

    The dollar will crash in 2011 and this will bring a depression to USA of much greater magnitude that the one that started in 1929.

  5. Jose Jiminez | January 6, 2011

    Bullish ? You've got to be nuts. The nation is bankrupt. Our political leaders are a pack of morons. The Federal Reserve is run by a bunch of pathetic incompetants. Meanwhile two wars are daily draining billions of dollars we don't have and are borrowing from all over the world, bankrupting everyone else as well. Yeah sure I'm bearish; isn't everyone ?

    Jose Jiminez

  6. Lugubert | January 6, 2011

    I try to avoid stock that is even remotely linked to USD or EUR. I go for the RIC in BRIC, selected metal mines in CAD, AUD and SEK, and physical noble metals.

  7. Bill Morningstar | January 7, 2011

    Do you think that world bank can continue to prop up Eu countries through 2011, or will it collapse in 2012?. Will the US dollar continue to be the currency of the world through 2011 or will the Chinese govt have sold enough US bonds to simply walk away?. How long can the US govt continue to print money to buy their own bonds?
    I am a retired farmer but still own my land and rent it out so I have an interest in the world food situation. With the worlds transportation improvements there does not have to be a stockpile of food anywhere as there was 30 + years ago. As a result the world is relying on a ,"JUST IN TIME" method of supplying food to the people. The supply of world food is extremely tight at the present time . Doesn't matter how many dollars you have , no food no eating. Crazy in the world could cause a major problem which will certainly affect the world economy.

  8. Kirk Cornwell | January 9, 2011

    Can you say "Wall of worry"? I'm not worried about making money in the market, I'm worried that the money I make may not buy anything. I believe that the Fed-Treasury shell game is about to be exposed.

  9. Ron Johnson | January 9, 2011

    We are in a baby bull market inside a bear market… The market is overbought ..after a pull back the market in 2011 will probably run 10-15% higher than 2010 december highes …. We have gone thru a door in history where we have never been before. The news media tries to make you think the market will run up forever ???????? There will be problems in our banking system, real estate, and unemployment for years to come …. Everyone knows the way in which unemployment is figured is a total joke …. in time interest rates have to go up and in the near future the intersest note on all of the money we keep borrowing …. and rolling over the principal …. is coming due.

  10. j gordon | February 20, 2011

    Let me put it this way, even if i was going to make money in the market, I WILL NEVER PUT ANOTHER DIME WITH CROOKS WHO CALL THE SMALL GUY " WIDOWS AND ORPHANS "
    People should not protest in Wisconsin , their problems started in New York and Washington.
    Look at the middle east for inspiration.

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