First quarter update for 2011


Quarterly Market Outlook

The first quarter of 2011 proved to be very eventful with the market trading on news headlines.  We had the unrest in Egypt and Libya, ongoing disruption with the European credit crisis, the disastrous earthquake and subsequent tsunami that hit Japan, followed by concerns of radiation leaks from their nuclear reactors.  

We also saw the threat of inflation, due to ever-rising commodity prices, yet the S&P 500 Index had its best first quarter since 1988, positive approximately 5.5%.  Oil and gold continued to approach record levels primarily because of the threat of war in the Middle East. Unemployment is slowly easing, and there are fewer commercial office space vacancies. Just as recent as last month, the national vacancy rate for commercial office space dropped for the first time in three years and rents climbed, signaling the market is beginning a recovery as the economy improves. Housing continues to be a concern of ours, but we do see a significant improvement over the next 24 months.

We are extremely bullish on the financial markets over the next 24 to 36 months for several reasons:

• CEO sentiment has greatly improved during the last two quarters
• Corporate earnings are as good as they’ve been in the last decade
• Large corporations have the richest balance sheets they’ve had in the last 30-40 years, with the least amount of debt
• Consensus estimates for 2011 S&P 500 earnings are $96 a share, (which would be a record), followed by consensus for 2012 at $106 to $108 a share
• The S&P 500 is currently selling at 13.1 times earnings for 2011 and 12.1 times earnings for 2012; historically the S&P 500 has sold at 21.2 times earnings
These are just some of the reasons why we are so bullish.

We adjusted our asset allocations, removing our exposure to the Pacific Rim and Emerging Markets, and repositioning those dollars to Natural Resources (primarily, oil and gas). We continue to be over weighted in the Financial services sector, Commercial/Industrial Real Estate, Oil and Gas, and Technology. Most large-cap tech companies are selling at 10-12 times earnings, with zero debt.

As we mentioned in our 2010 year-end newsletter, we are forecasting interest rates to rise, with the 10 year T-Bill approaching 4.5 % by year-end.  We also anticipate the Dow at 13,500 or higher, Apple Computers to hit $400 a share, and oil to close at $110 a barrel. Bottom line, the global economies and U.S. economy are significantly improving.  

The U.S. stock market is one of the cheapest markets in the world, and it’s a great time to be an Investor.

Thank you,  

Ron Sloy, CFP 

Learn more about Ron Sloy.


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