United Methodist Foundation of Indiana

2011 Investment Outlook January 13, 2011

As investors look back over the last decade, the first decade of the 21st century, there is not much to feel good about. The Standard & Poor’s 500 stock index (excluding dividends) ended 2010 about 5% below its level 10 years earlier. This is only slightly better than the returns from 1930 through 1939 when the Great Depression devastated the economy. The Dow Jones industrial average was up about 7% for the decade. Hopefully, all that pain is behind us and we can

As we start a new year, many economists, consultants and financial advisors are offering their thoughts on what the new year may bring. As I have been reading many of those articles I see a common thread and decided to share it with our readers.

From my reading, it appears consensus that the worst of the recession is behind us. However, most are expecting a long and slow recovery for the U. S. economy. Talk of a double dip recession has all but disappeared from the discussion and now appears extremely unlikely. Unemployment appears likely to remain near the current 10% level for the near term. In spite of high unemployment, most commentators are generally upbeat about prospects for the economy. Modest growth of corporate sales is anticipated for 2011. Since corporations have become much more lean in order to survive the recent recession, those who survive will do all they can to remain lean, being reluctant to add employees or additional overhead. Thus, as sales increase, profitability will be high because of their low overhead.

As long as the U. S. and global economies continue to grow, corporate profits will likely follow. The Federal Reserve forecasts U. S. growth to be in the 3% to 3.6% range in 2011. Some observers are more cautious, some predicting only 1.5% to 2.5% growth. Regardless, if corporate sales increase, profits will increase and drive the stock market higher. The real question is how fast or high will the market rise.

The Fed’s investing billions in mortgage backed securities and treasury securities will create an “easy money” situation. This could easily help fuel corporate growth and profitability. On the other hand, it could result in increased inflation. Most commentators seem to think inflation is still a minor threat for the time being.

Many advisors are bullish about stocks for 2011, expecting returns equal to or exceeding 2010 performance. Some use a rule of thumb, “overweight stocks in the portfolio when 10-year treasury yields are below 3%.” Of course, that is the situation we are in.

Emerging market stocks are likely to continue to outperform U. S. stocks. The developed international markets are likely to be slow to recover and some (especially Europe)may continue to experience debt crisis. U. S. companies with a global reach are likely to outperform those with only a domestic focus.

Need Help?

If your church would like assistance in developing an investment strategy, reviewing your current investments, or exploring other investment options, we would be happy consult with your decision makers to assist. Our Foundation provides these services free of charge to United Methodist churches throughout Indiana. Just call me or send me an e mail.

Happy Investing!

Royce

Royce L. Ruckman, CPA, AEP

Director of Investment Services

United Methodist Foundation of Indiana, Inc.

1001 N. Western Ave., Suite D, Marion, IN 46952

toll free 866-669-2327,  local 765-664-2327,

cell 765-661-6804

e mail rruckman@niumf.org

Visit our web site at http://www.niumf.org