Market watchers are much less concerned these days about a double-dip recession or another collapse in stock prices. Instead, their tone has shifted, from talk of havens and "getting paid to wait," to advice about stepping carefully and choosing the right stocks in a market short on great values.
"A semblance of order has returned to equity markets," BMO Nesbitt Burns declared Friday.
With the U.S. Congress expected to pass President Barack Obama's tax deal with the Republicans, many economists are raising their forecasts for U.S. economic growth, saying GDP could increase 3 per cent in 2011. That expansion should support further growth in corporate profits. RBC Dominion Securities sees S&P 500 profits hitting $81 (U.S.) a share at the end of this year and rising to $88 next year.
U.S. Treasuries suffered their biggest selloff in two years last week, in a sign that investors are ready to incur greater risk by buying stocks, commodities and other assets.
On Tuesday, the Fed will announce its interest rate policy (almost certainly unchanged) and give its latest views on the economy. But what could chairman Ben Bernanke possibly still have to say after stoking the markets last month with another round of asset purchases?
The Street will be more interested in the retail sales report for November, also to be released Tuesday, which will include the first numbers of the holiday shopping season. Economists are anticipating a month-to-month rise in sales of 0.6 per cent. U.S. industrial production figures, also coming Tuesday, will give more detail on how the economy is growing. And CPI data due Wednesday are expected to reconfirm that inflation remains at bay.
The Fed's second dose of quantitative easing, which is being injected gradually, has already had an effect on investors, who must now look ahead, says Roland Chalupka, chief investment officer and portfolio manager with Fiduciary Trust Co. of Canada, which manages money for high net worth clients.
The biggest unknown is whether the debt crisis ravaging Greece, Ireland and other parts of Europe will wash onto U.S. shores. Regardless, bonds are entering rough territory, with too much debt in the developed world and clear signs of inflation in emerging markets.
"The balance of risk has changed meaningfully in last couple of months," Mr. Chalupka says.
Until recently, his team liked plain-vanilla U.S. government bonds and the safety they offered. But with global currents changing, Fiduciary Trust is reorganizing its holdings. The group is moving to different maturities, a global focus and lower-rated but higher-yielding bonds.
The threat of renewed inflation could weigh on companies, but stocks remain more shielded than bonds, in part because companies have so much cash on hand these days. Mr. Chalupka says he continues to like consumer discretionary stocks, as well as those from defensive sectors such as telecom and U.S. health care.
"We're looking for areas that are unloved and well valued. But at this point it is hard to see them," Mr. Chalupka says. "In 2011, we're looking at companies that are growing their numbers. In a slow-growth economy, you get rewarded if you can capture market share or sell new products and innovations like Apple does, or just operate more efficiently."