Morgan Stanley Smith Barney
says 2011 will be a bull market and equities should have a significant boost in the new year.
"We have been in a bull market since April of 2009," said Charles Reinhard, global investment strategist for Morgan Stanley at a press briefing last week.
The improvement in the economy will help the market to start to recover, said Jeff Applegate, chief investment officer at Morgan Stanley Smith Barney. He added that with QE2 and the midterm election results, the prospects of extending Bush tax cuts has increased.
"The U.S. policy response was adequate and credit improved. So 2011 becomes a year of recovery and expansion," said Applegate, "During the first or second quarters the GDP profits and outlook should exceed the prior cycle."
Reinhard calls 2011 a, "good old fashioned bull market," and predicts there is an opportunity in equities because many stocks are currently underpriced. He sees both an opportunity in emerging markets and in the S&P 500.
"We should have a good year ahead in equities," Reinhard said. "We are looking at 30 percent profit growth for S&P 500 companies. We are in a window of opportunity."
Rui de Figueiredo, a consultant for Morgan Stanley Smith Barney's Alternative Investment Partners Portfolio Solutions Group, added that hedge funds are trending up and 2011 will be about, "returning to the fundamentals."
"There is a substantial opportunity for stock pickers. Trading managers will do well," de Figueiredo said. "There are a lot of opportunities for managers to market the portfolio and return to fundamentals."
In addition, Figueiredo added that he expects merger activity to increase in the second half of next year. As merger activity picks up the availability of credit is a likely open opportunity for investors going forward, especially around large companies, he added.
David Darst, chief investment strategist at Morgan Stanley Smith Barney, added that portfolio managers should keep an eye on stock for large U.S. companies. He says the world's largest companies are sitting on cash and looking for ways to expand while their stock is cheap.
--Written by Maria Woehr in New York.
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