subject: Will 2011 Be A Bumper Year For Share Traders Or Will The Markets Fall? [print this page] 2010 has been a very good year for anyone investing in the stock markets as they have risen strongly on the whole. So the big question is whether this upward trend will continue into 2011, or whether they will give back some of these gains and fall back down again.
Of course no-one knows for certain which way the markets are going to move in the future, so I can only offer a considered prediction. My own view is that despite the fact that the markets have gone up a great deal in recent months, there may be limited upside going into next year.
The reason why I say that is because the world economies face some very serious issues in the near future. I can't speak for every country, but I do know that here in the UK there are major job cuts coming in the public sector next year, as well as a significant rise in the VAT rate. So both of these factors will curb public spending and ensure that the economy grows at quite a small rate in all probability.
Another reason why the markets could well fall is because if you scan through the major constituents of the world's leading stock markets, there are very few bargains out there. On a price/earnings basis, a lot of the listed companies are overvalued at these elevated levels, so it is hard to see the markets rising much further.
That's not to say they won't, however, because markets often overshoot to the upside in a bull market, and vice versa in a bear market. However I personally think they will fall back down again so they are trading at more realistic valuations.
The harsh reality is that although the worst of the recession appears to be behind us, it is hard to see the economy growing at a significant rate in the next year or so on a global basis. Unemployment is not coming down very quickly and interest rates could well go up in the future in various different countries, meaning increased mortgage payments could dampen consumer spending.
I myself am mostly in cash at the moment and I certainly won't be rushing out to buy stocks at these inflated levels. If the markets continue going up, I will simply remain on the sidelines and accept defeat. However I think the markets are likely to fall in 2011 and I wouldn't be at all surprised to see them trading slightly lower than today's levels this time next year.
