Business News

Market to climb close to 20%

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by Peter Switzer

Sitting back in my New York apartment I was surfing the business channels and stumbled on David Kostin of Goldman Sachs who was giving the financial juggernaut’s call on 2011. And one of the big ones was that the stock market will go up by, wait for it, around 20 per cent!

When interviewed on CNBC television, both the market and the economy were given Kostin's positive thumbs up.

Today, the S&P 500 index was off 1.5 points to 1223 but Goldman sees this broad and important measure of US shares hitting 1450 over the next 12 months.

Kostin is Goldman’s chief US investment strategist and he sees a trifecta of good omens justifying his optimism. The economy plus corporate profits and current under-valuations all are expected to go into the mix for a booming year on the stock market.

More omens

He didn’t throw in the fact that history says GDP often picks up in the third year of a presidency and generally follows an increase in the money supply in the second year. We have seen this with the so-called QE2.

There’s also history that says when the US president is a Democrat without influence over the Congress then the stock market registers strong rises.

In a sense, if you could rule out concerns over European debt problems, you could nearly argue that 2011 could be a perfect storm that will blow the market indexes a lot higher. However, I’m a realist and we’re in special times where the economic challenges are quite unique. That’s why I’m reserved and cautiously optimistic that shares will head up over 2011.

The Goldman view

Here are some more of the observations from Goldman:

US economic growth accelerates from 2.5 per cent to four per cent by the end of 2012.
Strong corporate balance sheets, low inflation and interest rates are tipped to help shares.
The analysts likes technology in particular but also financial and energy.
They were underweight health care, consumer staples and utilities — largely defensive stocks.
Their gold target is US$1690 an ounce by the end of 2011 but it should go higher, with a peak at US$1750 an ounce in 2012. That’s when US interest rates will be on the rise.
Oil is expected to go to US$105 dollars a barrel in 2011.

Goldman has a pretty good record on market calls and this important note should be a part of your market decisions for 2011.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published on: Tuesday, December 07, 2010