Will stocks rise in 2011?

The consensus among investment banks and fund managers is that Western stockmarkets will rise by around 10% in 2011. But this may be a bit much to ask.

Investment banks and fund managers have begun to issue their annual forecasts for the year ahead. The consensus view, says Jennifer Hughes in the FT, appears to be that the global recovery "will continue, with some inflationary pressure, but not enough to force central banks in the US, Europe and Japan to reverse super-loose monetary policies". Forecasters expect European, UK and US stocks to rise by around 10% in 2011.

But this may be a bit much to ask. After all, most of the developed world is struggling with "the most difficult economic circumstances of the post-World War II era", as former Fed chairman Paul Volcker notes. So the recovery in the US, which sets the tone for world markets, looks set to remain "sluggish and fitful", as Capital Economics puts it. Rising food and energy prices, a renewed slide in house prices, and lacklustre employment growth the jobless rate is at a six-month high of 9.8% all bode ill for consumption (now 70% of GDP).

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