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.
"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.
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?
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