Lakshman Achuthan, the managing director of the Economic Cycle Research Institute, says recent economic data puts the “nail in the coffin” of the double-dip recession fears, and says he expects a “revival” of growth in the early spring of 2011. In an interview on Bloomberg TV, Achuthan also discusses the employment outlook and the disconnect between GDP growth and job growth in the U.S. And, he says policymakers are missing the fact that the economy doesn’t need any more stimulus to recover.
While few have noticed, the U.S. has now reached pre-recession gross domestic product levels, says one top strategist who is bullish heading into 2011.
In a recent MarketWatch column, Mark Hulbert says Norman Fosback, editor of Fosback’s Fund Forecaster, has extrapolated U.S. GDP data and found that, “as of this moment, we are virtually right there: a 100% recovery” in real, inflation-adjusted terms, of where the GDP was at its pre-recession peak. “And if not, then a couple or a few more weeks at most,” Fosback adds.
But while that may seem like a major milestone, few in the media have picked up on the story, Hulbert notes. “Therein lies a tale, which Fosback finds very significant when assessing the stock market’s potential,” Hulbert writes. “The lack of attention to the magnitude of the recovery has been caused, in his opinion, by ‘the extraordinary pessimism enveloping the consumer investing population, fanned by a fear-mongering financial media.’ That skepticism, in turn, has played a big role in holding the stock market back from even bigger gains in recent months.”
Fosback says that pessimism means that the bull market will likely last longer than it would have if investors were more gung-ho. He’s expecting that stocks will gain about 22% in the next 12 months, and he thinks they’ll average 11% annualized over the next five years.
Kenneth Fisher says 2011 is “likely to be very frustrating for bulls and bears alike”. Fisher says the last few years have been years of betting on beta — broad market and economic trends. In 2011, however, he thinks investors will need to make good “alpha bets” — i.e., pick the right stocks or sectors or countries — to make money. He thinks there will be a lot of volatility, with the broader market ending up a little in the black or a little in the red. He expects that the broader bull market will resume in 2012, however. Right now, material, industrial, consumer discretionary, and energy stocks are among the areas he’s high on.
Charles Schwab Chief Investment Strategist Liz Ann Sonders says she’s optimistic on both the economy and stock market heading into 2011.
Sonders tells WNYC News that she thinks people will be “pleasantly surprised” by the rate of U.S. gross domestic product growth in the coming year. She says she expects a significant pickup in job creation, though she thinks structural issues will keep the unemployment rate relatively high for some time.
Sonders says those structural problems include both education and the housing market. She also says state and local government financial problems are an issue, but she thinks the improving economy will offset some of those problems. And, she says she expects investors to continue the recent trend of shifting money from fixed-income investments to equities in 2011.
Each week, we take a look at which stocks John Reese’s Validea.com Guru Strategy computer models have newfound interest in, and which they have soured on. Here’s a look at some of the stocks John’s strategies have upgraded or downgraded today. Among the movers are several Chinese companies.
Several top value managers who keyed on large stocks — to their portfolios’ detriment — in 2010 are continuing to focus on big blue chips as we head into 2011.
Among them: Donald Yacktman, whose funds have trounced the market over the longer haul but lagged in 2010. “In 40 years I have rarely seen a situation where so many big, profitable international companies are selling at such relatively cheap prices,” Yacktman told Bloomberg.
Another top fund manager who is continuing to see value in large-caps is Blackrock’s Dennis Stattman. Back in August, Stattman said he couldn’t “find a stock among the 20 or 30 biggest U.S. companies that looks expensive.” More recently, on Dec. 15, he told Bloomberg that large-cap stocks aren’t as cheap as they were back then, but added, “We still think they are attractive.”
Other managers who have been keying on big blue chips: GMO’s Jeremy Grantham and Legg Mason’s Bill Miller, according to Bloomberg.
Yale economist Robert Shiller says the U.S. shouldn’t forget that it is possible to provide more economic stimulus without actually adding more debt.
In an op-ed piece for The New York Times, Shiller discusses the “balanced-budget multiplier” theory, which maintains that national income is raised, dollar for dollar, with any increase in government expenditure on goods and services that is matched by a tax increase.
“The reasoning is very simple,” Shiller says. “On average, people’s pretax incomes rise because of the business directly generated by the new government expenditures. If the income increase is equal to the tax increase, people have the same disposable income before and after. So there is no reason for people, taken as a group, to change their economic behavior. But the national income has increased by the amount of government expenditure, and job opportunities have increased in proportion.”
Vanguard founder Jack Bogle recently offered his take on where the market and economy are headed, saying that he thinks stocks should gain about 7% per year in the next decade. Bogle tells Forbes‘ Steve Forbes that while emotions drive the market in the short term, fundamentals drive it over the long term. And right now, he says, given current fundamentals, a reasonable expectation would be for stocks to gain about 7% per year over the next decade. But Bogle also notes that “reasonable expectations” sometimes don’t turn into reality. He advises investors to “be a little careful out there” and lean to the conservative side, saying there may be somewhere between a 1-in-10 and 1-in-20 chance that we hit some “really, really tough times”.
Top growth investor Louis Navellier says he’s bullish heading into 2011, and is high on multi-national U.S. firms and technology companies.
“I think you can invest in a lot of big company stocks here in the States and feel good about it because such a high percentage of the S&P earnings comes from beyond our borders,” Navellier tells the Palm Beach Daily News. “You can actually benefit from that if you buy companies like McDonald’s, Dr. Pepper or Heinz. Even something like a Direct TV. Then you have all the big multinationals like Ford, John Deere, Cummings. These are companies that make a lot more money overseas than they do here.”
Navellier also says he sees better-than-expected U.S. GDP growth of 3.8% in 2011.
The article also includes forecasts from two other prominent strategists, David Dreman and Muriel Siebert. Dreman says he’s not a “roaring bull” on stocks in 2011, but adds that he does think the market “will do somewhat better. And we are fully invested.”
Bloomberg columnist and money manager John Dorfman says it’s time for investors to take on more risk. Dorfman tells Bloomberg that investors shouldn’t let the lingering fears from the 2008 crisis impact their investment decisions going forward. He also talks about some of his top stock picks heading into the new year.