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• 2011 Economic Outlook- A Mix of Clouds and Sun

2011 Economic Outlook- A Mix of Clouds and Sun

written on January 12, 2011 by Frank Fantozzi

 

Neither the bulls nor bears are expected to take a significant lead in the New Year as we expect the economy and the markets will be range-bound throughout 2011. Bound by economic and fiscal forces that will restrain and not reverse growth, we believe the markets will provide modest single-digit rates of return.

In 2011, business leaders, policymakers, and investors will play important roles in shaping the investing environment. We anticipate that:

• The job market will stage a comeback. Slowing productivity gains have driven the need to bring on new workers, we believe business leaders will step-up hiring, ultimately resulting in the unemployment rate drifting lower. However, slow sales growth from tepid consumer spending will keep the pace of hiring modest. That said, we expect nearly twice the pace of job creation experienced in 2010. Economic growth as measured by Gross Domestic Product (GDP) in 2011 will be near the long-term average at 2.5–3%; however, this is below the average of 3.5 – 4%, which is typical at this stage of a business cycle.
• Policymakers will deliver economic stimulus. As 2011 gets underway, the Federal Reserve (Fed) will be in the midst of providing substantial economic stimulus — after already providing a record-breaking $1.75 trillion in stimulus in 2008 and 2009. Later in the year, drags on growth will begin to emerge as the impact of the Fed’s stimulating of the monetary policy begins to fade and there is a gridlock-induced shrinking of the federal budget deficit.
• Investors will play it safe. Inflows to riskier markets will be anemic, contributing to modest performance for both stocks and more aggressively postured bonds. We expect single-digit gains for stocks as earnings growth slows and valuations remain under pressure, and single-digit gains for bonds as yields remain range-bound.
• Currencies will influence returns. The currency impact on investing will be pronounced in 2011, as the currency war that began in 2010 presents both opportunity and risk. We expect a downward, volatile path for the US dollar.

Overall, 2011 will continue the economic and market volatility of 2010. The global economy remains out of balance, teetering back and forth between the soft spots that invoke a need for increasingly extended policy support and the growth spurts that provoke a desire to begin to pull back some of the record-breaking stimulus. The last time government spending comprised as much of GDP as it does today (during 1945–1960); the economy went through a period of heightened volatility driven by the swings in policy action.

In 2011, the policy-driven themes of reflation, which is the intentional pursuit of modestly higher prices, and a broader U.S. foreign policy provide investment ideas that can thrive in a year where the performance of the major indexes is likely to be lackluster. Expected volatility, which will remain elevated, may present risks to be sidestepped and opportunities to be taken advantage of. Investors with a more opportunistic profile may benefit from a tactical approach to investing in order to find attractive opportunities when offered and successfully take profits when appropriate. Longer-term strategic investors should consider remaining broadly diversified.

Developing Your 2011 Strategy

If you would like our research department’s detailed analysis for 2011, please call us and we will email a copy to you. We would be happy to answer your questions or help you better align portfolio assets with 2011 market expectations to attempt to improve consistency across your portfolio. Call us today to arrange a complimentary meeting and keep things simple in the coming year. Our goal is no surprises and no worries.

Frank Fantozzi is a Personal Financial Specialist and an LPL Investment Advisor Representative. Frank is also a CPA with a Masters in Taxation and a Certified Divorce Financial Analyst.  Frank believes that achieving your goals and dreams does not happen by simply handing over control of your assets and your future, but in part by ensuring your unique voice is heard and your vision reflected in every decision. This philosophy helps to shape your unique Return on LifeTM, an individually-defined measure of success that goes well beyond investment performance.  Frank can be reached at 440-740-0130. www.GettingFrank.com

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Securities offered through LPL Financial, Member FINRA/SIPC.