The past couple weeks of 2010 were lackluster.

 

As the charts above illustrate, the last week in particular was dull beyond description. The good news though is that the Dow Jones Industrial Average held on to post a

gain of 11% while the NASDAQ Composite gained an even better 16.9% for the year respectively.

Our portfolios did even better despite our allocation to cash and a rather conservative list of stock holdings especially in our dividend accounts.

The Markets & Economy

The stock market has begun the New Year with a growing consensus that the economy is improving, something which we have pointed out many times here over the past several months. Even the banks are starting to show some signs of life and they have become the most hated group as well as the most dependent upon an upturn in the economy and employment.

Having said this, the market, while off to a fast start this morning, has been discounting this improving news (as well as the presumptive upcoming deadlock emerging from Washington DC). Thus the sentiment towards stocks has improved to pretty high levels and this concerns many of those who are contrary in their trading.

Consequently, while the New Year often benefits from an inflow of funds, the real test of the market’s strength will come when the inevitable daunting headlines dominate the news. Clearly, Europe’s problems have not been solved and neither has our budget deficit problems.

Did you know that the financial markets judge the state of Illinois

as more likely to go bankrupt than the country of Iraq?

Many difficult decisions face our policy makers and will impact the job creation process. Public sector jobs must be replaced with private sector jobs. This means the economy must grow overall even as certain sectors shrink. This will cause in 2011 periodic episodes of selling just as it did in 2010. Accordingly, our job will be to keep some cash around to take advantage of opportunities and to trim positions when they get too large a percentage of the portfolios.

Critically though, the one area which will remain in focus is the prospect for corporate earnings. While most commentators focus on employment, stock prices are determined by profits. I continue to expect better economic news including the employment data. Significantly though, the employment numbers will remain quite disappointing. Our government has simply made it too expensive to hire and corporations are finding they can continue to get along with the resources they have. This is good for stocks, but bad for many elements of society.

To many in government, the answer is more spending and giveaways such as cash for clunkers etc… The only way to solve the unemployment problem is through private sector growth. When people work they pay taxes and do not require government assistance. Both would be positive for both society and our government’s finances.

The economic news, as alluded to above, continues to surprise to the upside with the exception of the housing and real estate sector. The weekly reading from the Economic Cycle Research Institute shown below has now risen to its highest year on year level since last spring. Importantly though it does not forecast a boom, simply that conditions are getting better at the margin.

What to Expect This Week

A new Congress is sworn in on Wednesday and I assume before the week is out there will be over-reported disputes between the Obama Administration and the Republicans newly elected last November. This dispute will be welcome news to the stock market especially when compared to what was on the agenda one year ago.

Finally, look for continued dollar bashing from all sides. When you hear this, remember that they will never actually tell you that the dollar actually gained 1.4% last year against a basket of currencies. You will not hear this because these people are out to scare you and not to enlighten you.

 

                                                                                           SYMBOL:  BA

Boeing remains in the news as we start the New Year.  The management team is expected to release a new timetable for the introduction of the 787 Dreamliner within the next few weeks and now most investors are expecting the first plane will be delivered sometime this summer.  While the launch of the 787 has been delayed for years now, the Company is getting closer every day and they know much more about the plane than they did a year ago.

Despite Boeing being in the news for the last couple of months, because of the delays with the 787, the stock performed well in 2010.  The shares closed 21 percent higher than they did in 2009, which significantly outperformed the S&P 500 during the year.  We expect that once a legitimate timetable is set for the 787, we will see even more substantial price appreciation for shareholders.

We still see very favorable industry trends that should keep Boeing shareholders happy in 2011.  For the past decade commercial airlines across the globe have under spent for new planes and the trend has been reversing the last 16 months.  We expect that trend will accelerate in 2011 and more than offset any slowdown in military spending.  Also, we expect earnings growth in 2011 of at least 12 percent from 2010.

Shares of Boeing have been stuck in a trading range since they announced possible delays in the 787, and we believe there isn’t much downside to the current levels.  As investors start to believe that 787 delays are behind the Company, we believe the shares will rally sharply, probably up to $100 per share.  We will keep you informed on the progress of the Company, and remain very bullish on the prospects for shareholders of Boeing.

 Three-Month Chart

 

(c) McIntyre, Freedman & Flynn

www.mcintyreinvestments.net