Citigroup Gauges 2011 Market Risks

Some observers are totally bullish on the new year,but Tobias Levkovich,Chief U.S. Equity Strategist at Citigroup,recalls that we still have geopolitical risk to consider.In addition,we haven't really talked a lot about gasoline prices,which have been climbing markedly lately.
Political heat will occur in the latter part of 2011,as primary election issues come into focus.At that juncture,a separation of the parties will take place.People want something done in Washington,but at some point the paths totally diverge.
Health care will be going on for a couple of years in the courts.The funding of it will be an interesting battle to see,but commodity prices will be much more interesting to the markets.
Profit margins are not being paid attention to.Around mid-year,that could be an issue.Wage creep that pressures the margins could be a big issue.We're looking at the S&P 500 reaching a level of 1400 in 2011.We think the beginning of the year will be relatively strong;then there will be a pullback on some of these margin issues.
We review our targets in December.What drove the markets in December were the tax cut extension and payroll tax deduction,Mr.Levkovich said.A Canadian citizen who frequently appears on business television,he writes a report card on his own performance every year.
Citigroup(C)

Beta Trade Is Waning

This current rally is not progressing at the same rate as earlier ones,according to Carter Worth of Oppenheimer.The good eating's been had.We're not getting quite the torque that you would anticipate,given the news.The market keeps bumping up against 1100 on the S&P.People are rotating out of the beta trade-the speculative trade-into the more established,recognizable names.It's a maturing of the rally,Mr.Worth believes.
Everything is starting to participate,in Carter Worth's view.That's where you get into the stall speed.You should double back and pick up large cap laggards such as Wal-Mart.2003 was a big recovery year.By 2004,hyper-correlation broke down.We think this everything trade starts to break down in 2010,Mr.Worth noted.
In fact, the S&P did break above 1100 this morning.It remains to be seen,though,if it can close there.

Positives and Negatives

The cyclical positives and secular negatives are in a tug-of-war,in the opinion of Bob Doll,Vice-President and Global Chief Investment Officer of BlackRock.The market is acting a little tired.Volume has shrunk some.Maybe we take a little pause here.I think we'll see a thousand on the S and P-maybe the low hundreds-first,Mr.Doll said.
We are of the view that the recovery will be sub-par,Bob Doll stated.Equities are O.K.,but we're not going to have the normal recovery,given the deleveraging overhang and the reluctant consumer.As for inflation,a lot of the interest rate rise we've been seeing is plain old normalization of rates.The velocity of money has not yet picked up.We have all kinds of unused capacity in areas such as manufacturing and labor,and we have to fill those up before inflation becomes a problem,Bob Doll maintained.

Kraft Prices Competitive

I feel very good about our prices relative to our competition,Irene Rosenfeld said.Our prices are up significantly in response to the high input costs,but we do expect to see our volume growth improve from Q2.Our stock has been hit less than many stocks in the Dow and the S and P 500.If we can continue to do what we do well,then our stock will follow,the Kraft CEO predicted.

Final Results for 2008

The Dow Jones Industrial Average fell 33.84% for 2008,its only gainers being Wal-Mart and McDonald's.The S and P 500 Index dropped 38.49 for the year,while the NASDAQ Composite Index plunged a record 40.54%.The Toronto benchmark was off 35.03% for 2008.In North America,Mexico's stock market fared best,with a drop of just 24.23%.Of the 20 most widely held stocks in the U.S. markets,Johnson and Johnson lost the least,with a decline of 10.3%.

Rate Decision Today

Today the Federal Reserve issues its interest rate decision at about 2:15 PM Eastern.This could move the markets.The Dow Jones Industrial Average is down 3% month to date, while the S and P 500 Index is down 3.09% month to date.

Looking At the History

Alfred Goldman of Wachovia Securities has been reflecting on October.It was a big sell-off,with the S and P 500 Index down about 20%.It was the greatest level of fear I've seen in my whole career,Mr.Goldman said.Corporate earnings are gonna be miserable,but he market is oversold.Hopefully the market will rally when the new president is known.These are probably the best values I've seen in the past forty-eight and a half years,the distinguished analyst noted.You look at the history of this country since 1776,and you selectively start buying-with some cash on the side in case of hiccups,Mr.Goldman advised.He likes John Deere(DE) and Illinois Tool Works(ITW).