U.S. stocks to climb wall of worry in 2011

14:27, January 01, 2011      

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Traders work on the floor of the New York Stock Exchange on the last trading day of the year in New York December 31, 2010. (Xinhua/Reuters)

U.S. stocks ended the last trading day of 2010 on a down note as investors locked in profits, but the past year was much better than lots of people had expected.

The Dow Jones industrial average climbed 11 percent for the whole year. The broader S&P 500 rallied about 13 percent and the tech-heavy Nasdaq jumped nearly 17 percent.

Worries on European debt crisis, monetary tightening in some emerging countries, a potential double-dip recession in the United States, as well as a scaring memory of"Flash Crash" on May 6, have all proved the process was not smooth sailing.

Looking ahead, with the U.S. economy showing more signs of recovery, many investors believe the market will still manage a decent gain in 2011, but again, the road ahead will be bumpy.

According to a joint survey by BarclayHedge and TrimTabs Investment Research, 46 percent of hedge fund managers were bullish about the S&P 500 index, the highest level in at least seven months and much more than the 30.5 percent in the previous month.

Meanwhile, the ten strategists and investment managers surveyed by Barron's see the S&P 500 finishing next year near 1,373, roughly 10 percent higher than 2010's close of 1,257.64, as a sustainable economic recovery takes root.

The consensus now in the market seems quiet clear: although the U.S. economy has little chance to achieve a strong recovery in 2011, it can still keep a slow but rather steady growth.

Indeed, improvements are not hard to find in many sectors.

Consumers are feeling more comfortable to spend. U.S. retail sales, excluding automobiles, rose 5.5 percent between November 5 and December 24 compared with a year ago, the biggest increase since 2005.

Jobs market, which is considered to be the most critical for the recovery, is also slowly picking up.

The latest report from the Labor Department showed the number of people applying for jobless benefits dropped sharply last week to a seasonally adjusted 388,000, the lowest level since July 2008 and also the first time for the number to drop below 400,000 in more than two years.

Accordingly, economists have grown more optimistic about the outlook for U.S. growth, predicting the expansion will accelerate next year, as data on trade, consumer sentiment and manufacturing have all been looking better as well.

On average, the economists now predict U.S. GDP will grow about 3 percent next year while much fewer people think a double-dip recession is possible.

Adding to the bullish mood, the second round of quantitative easing (QE2) is believed to be continuously driving stocks higher, even as some of 2011's gains have been pulled forward. The S&P 500 has rallied more than 20 percent since late August, when Federal Reserve Chairman Ben Bernanke first hinted more monetary easing. But as long as the interest rate stayed at historically low, the stock market is still going to be one of the most attractive places for investors.

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