The Standard & Poor's 500 Index, the benchmark for large-cap American equities, will rise 11% to 1,379 in 2011 -- at least according to the 11 strategists in a Bloomberg News survey. That's what their prognostications for next year work to on average.
The analysts also expect the S&P 500 to record its biggest three-year advance since the 1990s as profits hit record highs and companies boast strong cash balances. That would mean the index will have increased 53% since 2008, giving it annualized gains of 15% over the three years.
A Recovery Just Getting Going
Goldman Sachs's (GS) David Kostin, the most accurate U.S. strategist this year, according to Bloomberg, is even more bullish. He says sales growth will spur a 17% rally in the S&P 500 through the end of 2011.
Analysts say the record earnings, partly due to margin expansions and the economy being in the early stages of a recovery cycle, will keep valuations below historical averages at the same time that government spending further bolsters economy.
And with the tax deal President Barack Obama reached with Republicans last week (coming to a key Senate vote today), stocks are gaining momentum, as many analysts, including Pimco's Mohamed El-Erian, raised their forecast for U.S. growth. Former Fed Chairman Alan Greenspan also said recently that the stock market rally is vital to economic recovery.
Now the question is when all this -- the lower tax rate, the Fed's second round of quantitative easing, the record profits, strong cash balances and increased spending, buybacks and acquisitions -- will translate into more jobs. Pimco's other chief investment officer Bill Gross said on Dec. 3, according to Bloomberg, that the continued slump in hiring shows gross domestic product isn't expanding fast enough to sustain market rallies.