2010 was a good year for the stock market and the good fortune also went to the most major US stock markets because there was a quite satisfying result at the end of the year. So, it can be fun to have a brief view to what will be happening to the stock market in 2011.
To have further prediction of the upcoming year, it is a good start to see the consensus expectations. According to the survey done by Bloomberg toward 11 of the largest brokerage firms in US, S&P 500 consensus target by the end 2011 is estimated to reach 10 percent above the current levels. It is also expected that each strategy will give a positive performance out of the index in 2011.
However, there are three major risks which seemingly may affect the consensus expectations in 2011. They are global growth slowing, inflation accelerating, and interconnected risk heightening. They can become a trinity of negative fundamental macro that disturbs the market.
Another prediction appears is that the growth in US as well as in particular major emerging market economies will run slowly next year although there are different reasons may cause this. In domestic area, the consumer spending which is estimated 70 percent of GDP will be limited as consumer confidence wear away together with a further slide in home prices. Moreover, the lack of confidence that is combined with a high structural unemployment rate and a tight credit environment can result in continued pressure on the American consumer in 2011.
On the other hand, the major growth issue globally is affiliated to inflation. Inflation is increasing as you can view from the major emerging market economies that trigger the global growth. The consequence may appear if the level of inflation is continued is the tightening of monetary policy and a subsequent declaration of growth abroad. There should be more aggressive action to accomplish in 2011, particularly related to the accelerating commodity prices.
Another factor should be seriously paid attention to is the increase of interconnected risk. It contemplates rising market and asset correlations in joining with a mispricing of a number of global macro risks. The suggestion for strengthening cross-market and cross-asset class correlations is specifically dealing with the context of an increasingly interconnected global market place, whether it is a major dislocation or failure or particular market is increasingly likely to echo equally across other major markets.