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2011 Will Offer Trio of Milestones

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2011 should offer a trio of three-year milestones.

S&P’s Sam Stovall notes in a recent research report that, in January, President Obama begins his third year in office. In March, the S&P 500 starts the third year of this bull market. In June, the U.S. economy enters its third year of recovery.

So what does history have to teach us about what to expect from the markets and the economy?

The S&P 500, says Stovall, has risen an average 17% in the third year of a president’s term in office since 1945, while bull markets and economic expansions have historically lasted an average of more than four years each. However, the strategist emphasizes, we of course now live in unprecedented times.

“Will the economy, market and administration wind down or crank up?” Stovall asks. “Will these three milestones end up being a charm, or bad luck?”

For their part, Stovall and his colleagues on S&P’s Investment Policy Committee believe that, a year from now, equity prices will rise. They think 2011 will be a good year, but not a great one, for economic and equity markets, as history’s positive leaning will be partly offset by the strong headwinds that remain such as high unemployment and elevated debt on the sovereign, state, local and personal levels.
Specifically, they forecast the S&P 500 to be trading at 1315. The “500” today is at 1230. They’re more optimistic about stocks than bonds, and believe emerging market equities have higher price appreciation potential than U.S. or developed international equities.

In addition, Stovall and his team recommend embracing a more cyclical approach to equity markets early on, meaning Industrials, Information Technology, and Materials sectors, but warn that the age of this bull market may require an attitude adjustment as the year progresses.
POSITION:  No positions in stocks mentioned.