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While you were sleeping: Recovery trend intact

While you were sleeping: Recovery trend intact

(BusinessDesk) December 31 - The calendar may flip a page but the outlook set in the second half of 2010 seems likely to extend well into the New Year.

What about all the chatter of a correction, which has been steadily rising among the few traders manning their desks the last two weeks? Will it turn from fiction to reality?

The latest economic data from the U.S. suggests not, and the markets’ year-long performances bode well for 2011.

The S&P 500 is on course to close out its best December since 1991 when the index rose 11.2%, according to Reuters.

Today the S&P 500 was down 0.17% in early afternoon trading, though again, volumes are thin and most traders and investors have already positioned themselves for the end of the month, quarter and year.

Overall, the optimism about the pace of recovery in the world’s largest economy, and with it expectations that corporate earnings will show a solid pace of growth, has been underpinned by recent data.

U.S. labor department figures showed today that claims for jobless benefits dropped last week to the lowest level in two years, bolstering expectations that the job market is improving.

“The economy is gathering momentum,” John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, told Bloomberg Television. “The character of the recovery is a little more solid. Job growth will be stronger and that will help the consumer.”

Funds that focus on U.S. stocks ended an eight-month period of withdrawals last week, signalling investors were regaining confidence in the economic recovery, Bloomberg reported, citing estimates from the Investment Company Institute. Flows turned positive in the week ended December 21, when investors added US$335 million to American equity funds.

Some analysts including Peter Kenny, managing director at Knight Equity Markets in Jersey City, New Jersey, forecast a correction after the strong recent advance.

"The common sense of the street is that we get pullback after this Santa Claus rally and a very strong run up in the S&P since August," Kenny told Reuters. "But I don't think it will be in early January because everybody is expecting it."

Overall, investors remain confident, not least because of the positive signs from another of the world’s economic powerhouses, China.

Copper futures reached another record today, hitting US$4.379 a pound in New York, after data indicated that Chinese manufacturing growth eased, lowering concern that the government would raise interest rates to keep inflation under wraps. China is the globe’s biggest consumer of copper.

Even in Europe, which has battled concern about debt crisis in Greece, Ireland, Portugal and Spain this year, things are looking up. The Stoxx 600 has gained 9.1% this year on solid corporate earnings and support by central banks to propel economic growth.

So while New York may have been chilled by an unexpectedly strong winter storm this past week, and it may have deterred some consumers from shopping, the outlook remains bright, the days in the Northern Hemisphere are getting longer again and equities are expected to move forward confidently in the New Year.


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