If you want to know what the outlook will look like for 2011 look back at 2010, said Jeffrey Kleintop of LPL Financial in his opening remarks at the IMCA Practice Management Conference in Vail, Colorado Monday.
“It’s gonna sound kinda familiar,” he said. “ It actually looks a lot like 2010. It will be a middle of the road year.”
While there will be great opportunities to profit, the dollar will see a slight depreciation. The key drivers of 2011, said Kleintop, will be: the job market, which will stage a comeback; economic stimulus; currency, which will influence returns; and investors, who will play it safe.
Whereas 2008 through 2010 were years of extremes, 2011 will be smack in the middle. Most years Wall Street expects 4-5% growth, but 2011, like 2010, growth is anticipated at 2-3%.
But job growth should bounce back at double the pace. There will be some pain though. Already President Obama has announced a freeze in the wages of Federal employees. But, Kleintop said, Federal employees are only 1-2% of workers. Meanwhile, state and local employees are 15-16% of workers and as state and local spending continues to be a drag more employees will have to be laid off.
Investors will continue to sit on the sidelines, Kleintop warned, which will mean that there will not be huge inflows into stocks and bonds. With individual investors out of the picture, it will be harder to lure institutional investors, he added, which will keep a lid on valuations since demand won’t be there.
“We have a consumer that is spent,” he said. “Consumers do not have a lot of excess income.”
But businesses do. “We will see a strong business environment, but less so for consumer.” The shipping traffic, the number of rail cars carrying goods across the country, are showing strong growth, he said.
The key theme for 2011 will be reflation, which is what the Federal Reserve is doing with QE2, the second stimulus. Kleintop expects a lackluster housing recovery, which will remain that way for a long time despite rising oil prices.
Meanwhile, large cap stocks will continue to struggle in 2011, while midcaps will continue to be strong. Midcaps are more attractive acquisition targets as well.
What are the risks to this outlook? 1) Interest rates rising 2) a massive slowdown in growth in China.