Hennion & Walsh Trending

Given that it is officially prognostication season for 2011, many Financial Analysts, Market Strategists and Economists on Wall Street have been busy formulating their market and economy predictions for the New Year.  In this regard, consider the following:

1. Barron’s reported in a January 15, 2001 article by Robin Goldwyn Blumenthal entitled, “A Winning Streak: Heady Research at Any Age” that Federal Reserve Chairman Ben Bernanke, speaking at a Federal Deposit Insurance Corporation (FDIC) forum, predicted that the U.S. economy should grow by 3% – 4% this year.
2. The Wall Street Journal reported in a January 14, 2011 article entitled, “Bank Economists Raise U.S. GDP 2011 Forecast to 3.3% from 3%” the results of their economists’ survey with a conclusion that all are becoming “increasingly optimistic about the pace of the recovery, predicting the U.S. will grow at better than a 3.2% annual rate in each quarter this year.”
3. Moody’s Dismal Economics Group also recently reported that it looks like the 4^th quarter 2010 Gross Domestic Product (GDP) rate may come in higher than expected, at around 4%, based on a new burst of manufacturing activity following the end of the 3^rd quarter 2010, which they expect to continue, at least through the 2^nd quarter of 2011.

While these Wall Street professionals may be simply extrapolating a strong final quarter of 2010 out to 2011, we, at Hennion & Walsh, nonetheless find it a positive sign that the GDP bar is rising from November’s 2.5% or so consensus pace.  Yet with all of this positive talk, it leaves us wondering if we are all now too optimistic?

It will be important to hear how 1^st quarter 2011 earnings, and associated outlooks, come in with respect to anticipated demand and possible margin compression from rising commodities prices.