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More of the same from market

The trend will continue to be no trend for the foreseeable future

With the economy showing signs of recovery, many people are wondering what the stock market will do in 2011.

“In our view, the economy should continue on a slowly improving path in 2011, although high unemployment and weak housing are likely to remain headwinds,” says Terrell Kalmbach with the Edward Jones office in Gulfport. “Overall growth in 2010 was above 2.5 percent, but it may have felt much slower. These areas of weakness may have hidden three key positive trends that appear likely to stay in place in 2011.”

Kalmbach believes those three positive trends are:

> That the effects of the 2008 financial crisis should fade as time passes, but with slow progress.

> Company profits are strong and expected to continue to grow.

> Consumers are spending more but saving, too, which is positive for today’s growth.

“If the economy grows more quickly than currently expected, stocks typically perform well,” he added. “If it continues at a slow pace, we would expect low interest rates to continue longer.”

Mike Gibbs, managing director of equity strategy for Morgan Keegan & Company, is optimistic about the economy. He has been looking at the economy, along with the company’s external and internal resources to determine what the economic picture will look like in 2011.

“We expect the economy to continue to grow,” he said. “We entered a growth phase in 2010, but it will continue to be sluggish.”

Gibbs quoted consulting economist Dr. Donald Ratajczak of Georgia State University as projecting 2.7 percent GDP growth in 2011 while the consensus estimate in the street is expecting 2.55 percent GDP growth.

“We think unemployment will remain high but we’ll continue to watch it,” he said. “We are constructive on the stock market. It will produce gains for equity investors, and we predict the fair value target for Standard & Poor’s 500 by the end of 2011 will be around 1350, an increase from the current 1245 of 8.4 percent.”

Noting that the world continues to recover from the credit crisis of 2008, Gibbs says most people will take the 8.4 percent increase in the fair value target. “That means we think investors will make money,” he said. “We expect economic growth, interest rates to remain low, earnings to grow at a healthy clip of about 12 to 13 percent and the rate of inflation to remain in control.”

Morgan Keegan has 12 offices throughout Mississippi, including the main branch in Jackson.

State economist Darrin Webb doesn’t comment on the stock market, but he does think the country is already seeing signs of an improved economy. “The early indications are that holiday shopping, while still low, is up substantially from last year,” he said. “This is encouraging because it says people are beginning to have confidence to spend. I think they are still avoiding debt and spending more carefully than in the past, but they are spending.”

He sees the big hindrance to growth over the past year as uncertainty and fear. “While it’s not totally dissipating, this fear may be moderating,” he said. “If so, it will boost not only holiday sales but general economic growth in 2011. The recently enacted extension of the Bush tax cuts will also help fuel growth in 2011 and will do much to calm consumer and business jitters about their tax liability for 2011.”

Webb expects the economy to continue to improve but says the fundamentals of the economy will keep growth below historical averages. “The housing sector is still in the doldrums and that will not change anytime in the near future,” he said. “Also looming over the economy is the mountain of government debt that will have to be paid. This, too, limits growth in the long term.”

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