By James Woolley
Well another year is nearly over and we can now look forward to 2011. If you look back at 2010, you have to say that it’s been a really good year for stock market investors with the major indices all rising strongly up until now. So what does the future hold for next year?
Well I have to start off by saying that this is just my own personal opinion and it does not represent financial advice in any way, but I am fairly cautious about the markets. The trouble is that the major markets have all put in some really strong gains, and as a result there are very few bargains around. |In fact many of the leading stocks are either fairly valued or overvalued if you look at future earnings estimates.
This would suggest that the markets could well fall to more realistic levels in 2011, although it is very difficult to say. The economy is definitely improving, and earnings have been pretty strong from most of the large and mid-cap companies, but it is still quite fragile.
For instance here in the UK we have a VAT rise coming in the new year which will inevitably lead to reduced public spending. We also have a huge round of job cuts in the public sector which will also have a negative impact on the economy.
I think similar austerity measures will be taken in many other countries as well. So although we are unlikely to fall back into recession, I do think we are still a long way away from having a really strong global economy.
I personally am mostly in cash at the moment because I don’t see much value to be had in the markets at the moment. It’s perfectly possible that the upwards momentum will continue into the new year and the markets could rise another 10%, but I won’t be beating myself up about it if this does happen.
I much prefer to buy quality stocks when the wider markets are oversold, but that is a long way off at the moment. Of course I could always go short on some of the ETFs that track the major indices, but this is quite risky because, as I say, the markets could keep on going higher. After all most people don’t want to invest in property at the moment, so the stock market could well be a viable alternative.
So to sum up, I think the markets could well fall slightly in the first few months of 2011. I shall be more than happy if they do because I have lots of cash waiting on the sidelines. However no-one really knows where the markets are headed, so all we can do is make calculated predictions.
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