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• 2011 Mid Year Economic Outlook A Mix of Clouds and Sun On Track

2011 Mid-Year Economic Outlook A Mix of Clouds and Sun: On Track

written on July 13, 2011 by Frank Fantozzi

In the first half of 2011, the investing climate has been favorable — producing modest single-digit gains for the major asset classes. Two years after the green shoots of economic growth were first evident in mid-2009, they have blossomed and taken root. However, neither bulls nor bears, we continue to expect the economy and the markets will be range-bound in 2011. Bound by economic and fiscal forces that will restrain growth, but not reverse it, we adhere to our prior forecast for modest single-digit rates of return: high single digits for stocks and low single digits for bonds.

At the mid-point of the year, 2011 is on track for the key elements of our forecast that we articulated at the end of 2010:

• The job market is staging a comeback. Our expectation for the creation of roughly 200,000 net new jobs on average per month in 2011 has been met, so far.
• Policymakers have delivered economic stimulus. The Federal Reserve (Fed) has provided substantial economic stimulus, concluding the QE2 Treasury purchase program on June 30, 2011.
• Investors are playing it safe. Inflows to riskier markets remain anemic, contributing to modest performance for both stocks and more aggressively postured bonds.
• Currencies are influencing returns. As we expected, the currency impact on investing has been pronounced in 2011. The U.S. trade-weighted value of the dollar has fallen about 5% so far in 2011.

Key themes for investors can be found in a set of transitions unfolding in the second half of 2011. These transitions may offer investors positive options, in a period where the performance of the major indexes is likely to be lackluster. These transitions include:

• The evolution in the stage of the business cycle from economic recovery to modest, uneven growth.
• The change in economic policy to the withdrawal of the fiscal and monetary stimulus provided over the past several years.
• The return of inflation that we call reflation.
• The shifting geopolitical landscape.

Market volatility, which we expect to 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.

If you have questions, I encourage you to contact me.

 

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 me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly. Past performance is no guarantee of future results. Quantitative Easing is a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital in an effort to promote increased lending and liquidity. Stock investing may involve risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price. This research material has been prepared by LPL Financial. The LPL Financial family of affiliated companies includes LPL Financial and UVEST Financial Services Group, Inc., each of which is a member of FINRA/SIPC. To the extent you are receiving investment advice from a separately registered independent investment advisor, please note that LPL Financial is not an affiliate of and make no representation with respect to such entity. Not FDIC or NCUA/NCUSIF Insured | No Bank or Credit Union Guarantee | May Lose Value | Not Guaranteed by any Government Agency | Not a Bank/Credit Union Deposit Member FINRA/SIPC