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Current Market Insights and Investment Advice

I issue periodic letters with market insights, analysis of stock groups, credit markets and current market conditions. You may want to bookmark this page so you can come back and check for the latest updates.

2011 Market Outlook

The average estimate of the large bank/brokerage firms for the end of 2011 S&P 500 value is 1224, very close to where we are today at 1242, essentially predicting a flat market in 2011.

The interesting thing about this prediction is that, at the start of 2010 the consensus year-end price target was 1,225 for the S&P 500, which is just 20 points below where the index is currently trading. So, maybe there is some prognosticating value in this average prognostication? (On 12/31/09 the S&P closed at 1115.)

I don’t know where the S&P or the other indices will end next year, but I think the expectation of a flat market provides a good start for a sensible, yet flexible, strategy for next year. If we expect a flat market then we need to get return from somewhere.

That somewhere starts with income. We get income from dividends or fixed income (money market and bonds of varying maturities.) With all the money that continues to be pumped into the system we have to be concerned about inflation and lower bond prices. So, for next year, I continue to prefer stocks with high and rising dividends as the foundation of an investment portfolio.

Mature companies that pay a solid dividend and tend to raise it, at least a little, every year are attractive for several reasons:

  • Generally, a substantial and rising dividend is an indication that management is working for shareholders, not just themselves.
  • Statistically, as a group, mature, dividend paying company stocks are less volatile than non-dividend paying stocks.
  • With interest rates so low, 2%+ dividends are generally attractive.
  • It really is terrific, after just a few years holding a stock with a rising dividend (bonds don’t do this,) how much your yield has improved on your original investment.
  • It’s also comforting to see the cash flowing into your account each quarter.

Next up: 2011 Stock Market Part II: What May Continue to be Hot and What May Become Hot.

As always, call or write with questions.


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