All-round positive outlook for 2011 worrying

Steve Sedgwick
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This is it – the last meaningful trading week of the year. This is the final opportunity for anyone wanting to move around a decent amount of stock or trying to place an order without sending prices haywire. The week when the futures and options expire and we all settle in to the two-week lull before P&Ls go back to zero and we all have to start again.

So as we kick back and look forward to the seasonal re-run of The Italian Job, tins of Quality Street in the office and thrashing the Aussies in the Third Test, what market joys will 2011 bring us?

No doubt the big themes of 2010 will once again dominate and continue to fray the nerves. Sovereign debt woes, Chinese economic bubbles and US Government balance sheets will be high on the list of worries as ever but, let’s face it, we rallied on equity markets this year with acute concerns on all these fronts. So why not next year?

The analysts, and this may be a worry to many of you and to the analysts themselves, seem to be in accord. In accord that stocks and shares can rally nicely regardless of macro issues.

“We forecast a 13 per cent gain for European equities in 2011,” say the European strategy chaps over at Nomura.

The Credit Suisse team agree: “We forecast a 13 per cent rise in the global markets in 2011.”

And over at Goldman Sachs? “Our portfolio strategy team’s end-2011 index targets envisage 14-29 per cent returns across the major equity markets…”

So far in 2010 the FTSE 100 has produced a respectable rally of around 7 per cent, and an uptick of over 20 per cent from the July wobble. The argument for a continuation of the rally in the UK and across equities generally is based on several assumptions.

HSBC sees UK earnings growth of 16 per cent in 2011. Nomura points to a more proactive deployment of cash flows with CEOs likely to increase organic investment as well as M&A. Nomura’s Ian Scott adds: “Crucially the market is starting to give the green light to more proactive uses of company cash flows.”

Elsewhere, Goldman says a combination of better-than-expected growth and moderate inflation at a global level will be positive for risky assets. GS though believes the greatest risk to the positive scenario comes from the post-crisis fiscal overhang.

So there you have it. One very unscientific sampling of 2011 expectations. One straw poll which clearly points to a bullish outlook for equities despite the questionable economic fundamentals.

I for one am heartened people are looking on the bright side. I just wish it wasn’t across the board positivity. Markets have a nasty habit of making us all look a little stupid every time we get carried away. Anyone remember Marconi circa 2000?

Steve Sedgwick is a presenter on Squawk Box Europe each weekday morning on CNBC.