At the end of every year, I like to take a look back at the year that was and share some thoughts on what worked, what didn’t, and how we see the future. As we began 2010, we believed that most of the stock market’s cyclical gains were behind us. In contrast to 2009 when the market did exceedingly well in the face of a lackluster economy, for 2010, we believed that the economy would do very well in the face of more measured gains by the stock market. In general, while there were more fits and starts for the economy through the year than we care to remember, I would say that we got the economy part right, but were pleasantly surprised by just how strong the stock market finished.

Perhaps our best call in 2010 was the notion that the long reign of bonds at the top of the investor food chain was nearing its end and that equities, particularly those that paid competitive yields, could begin to attract the attention of income investors no longer satisfied with paltry fixed income yields and perhaps soon to be made skittish by the prospects of falling bond prices, once viewed as safe. On the other hand, our view of improving employment trends at the beginning of the year proved misguided. Though we still believe employment will improve from here, it is also clear that it will be in a more gradual fashion than has historically been the case following recessions.

As we look to 2011, we remain optimistic on the economy, believing it will progress from its recovery phase into expansion territory sometime during 2012. A more favorable regulatory and political environment should be a positive for corporate America, which may finally begin to spend its huge accumulated cash hoards, not solely by returning it to shareholders in the form of stock buybacks and dividends, but by also hiring new employees and upgrading their capital equipment as demand trends improve. A continued trend of bond market outflows and equity inflows should also prove constructive for the stocks.

While we’ve had a strong two years and will no doubt have our share of corrections as we did in 2010, the overall positive trend should remain intact. We look forward to solid results for stocks in 2011.

 

 

 

(c) Broadleaf Partners

www.broadleafpartners.com