Why we stock can be difficult to beat in 2011

With the US unemployment seems to be blocked at historically high rates of almost 10pc, interest rates look little likely to increase rapidly

Emerging markets, particularly in Asia outside of the Japan were top of the list for 2011. The United States does not get a shed.

That define my anti-conformiste antennas twitching and events on the pond last week confirmed that my opinion that the next year could be quite good for investors stock of largest in the world. Policy, the monetary and fiscal policy force corporate and evaluations all pointing to the u.s. market ending 2011 significantly higher than today's today.

Cycle electoral U.S. has tended to focus the year after the elections of mid-term, especially when a lame-duck President is obliged to keep his nose and transactions. Last week's tax package represented an important will denounce climb-down by President Obama and George W Bush beyond expire end of 2010 planned tax cuts extension removes one of the greatest obstacles to economic recovery next year. The biggest surprise in the package was a 2pc cut in contributions, which on its own will give the economy an annual boost of $120bn (£ 76bn).

This means that prospects are clearer to the United States that almost everywhere around the world. Not for American budgetary austerity will be 2011 chilly annually in the United Kingdom. For them, sovereign debt worries distressing Europe (although the 900bn increased $ to United States deficit due to measures of last week again it bite at any given time). Or they deal with the concerns of inflation, suspended over China and other emerging markets.

Inflation is, in fact, considerably less than implicit goal of Fed interest rates despite running standing with effective rate zero for two years. Goldman Sachs believes that they stay there on the other hand of two years, although the unexpected surge in yield bond 10 years in many countries over the past few weeks shows that forecasts of interest rates may be vulnerable to events.

With oscillating apparently to historically high rates of almost 10pc unemployment rate (see chart) and the actual high underemployment rate, however, I cannot see interest rates increase much in America, in the foreseeable future. Low interest rates which allowed companies to refinance debt to unprecedented conditions contributed to reaching levels near record margins. This trend has caused by particularly rapid reaction of firms to the slowdown in activity, the reverse the high unemployment rate. The net result has been that much higher than in the recession of the early 1990s and 2002 bottomed out margins.

The resumption of margins means that the average earnings for the S & P 500 components should be de-and-a-half times higher than the previous peak in 2007 and around made Beaver in 2000, when the US stock market has reached a peak of 1,527, higher than the level of today 24pc.

While assessments were then were obviously excessive, the combination of a market much lower and much higher earnings means actions are value much better today. Compensation is expected to grow at a double-digit rate both next year and the following year, to the multiple of the earnings, investors will be willing to pay can also increase. It is this combination of higher earnings and increasing prices to rates of remuneration that characterizes always the best years in the market.

The final reason why 2011 would be the year of America is the considerable weight of money is sitting on the edge of the stock market. I think that the increase in yields of government bond over the past few weeks could mark a watershed moment when investors are beginning to wonder if they got their money in the right place.

After few years outputs of mutual funds equity, wind rotates as investors accept they must move in risky assets if they hope to replace the income they have lost their deposits without risk. If the increase in bond yields change the perception that fixed income is a proxy refuge at the checkout, the United States equity market can receive significant injection of new money next year.

Easy money, growth, decent reasonable assessments and indifferent investors are quite interesting combination.

tomrstevenson@fil.com

• Tom Stevenson is Director of investment with Fidelity Investment Managers. The views expressed are his own

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