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Lukewarm Market

Tue., March 29, 2011

Easy breezy. Nothing to it. Oh, what a sure thing.

When it comes to stocks, such expressions are oh-so 2009, or even 2010. Definitely nothing you could use to describe the volatile ride of the first quarter of 2011.

Investors don’t need to wait until the first quarter ends Thursday to know that making a bucket of money so far this year has been touch and go.

U.S. stocks so far are posting slight gains but nothing like the gains in the first quarter of 2010. By March 23, mutual funds that invest in U.S. stocks on average had posted gains of 3.6 percent for the year. By contrast, the average gain for U.S. stock funds was 6.72 percent for the same time in 2010.

But could the rocky start mean a rock-bottom year for stocks?

Market volatility spiked after the Egyptian government fell and protests spread across northern Africa, oil prices shot up and then the earthquake and tsunami hit Japan. Now there’s been some recovery, leading some to believe this could still be a positive year.

“Expect single digits – maybe high single digits,” said Tom Roseen, senior analyst for Lipper, a Thomson Reuters fund analysis company.

If you’ve invested in some global funds – say, mutual funds that focus on China or Japan – you’ll see single-digit losses for the quarter.

World equity funds were up 1.4 percent, according to Lipper’s most recent numbers.

“Europe is still having these off-and-on spurts of people being concerned about sovereign debt issues,” Roseen said.

“The market is fighting a couple of headwinds here, obviously – Japan, the Middle East, higher oil, pockets of Europe,” said David Sowerby, portfolio manager for Loomis, Sayles in Bloomfield Hills, Mich. Even so, Sowerby expects that stocks could still have a “respectable year.”

He noted that in 2010 the Standard & Poor’s 500 was down by about 5 percent for the year as late as the end of August. But by the time 2010 ended, the S&P 500 was up nearly 12.8 percent.

Wall Street analysts aren’t expecting another strong year like 2010.

Main Street investors, though, are more fearful of a repeat of the market meltdown.

“What they don’t want to see is a 2008,” Sowerby said.

After the fallout in mid-March, stocks did post a strong rebound last week on more optimism that companies could soon report strong corporate profits. So far for the first quarter, the Standard & Poor’s 500 index was up 3.2 percent through March 23.

Right now, Sowerby and others maintain that stocks could see more positive swings further into this year – even after the earthquake, tsunami and nuclear emergency in Japan.

“My sense is there’s still enough momentum in the recovery that it’s not going to derail it,” said Bob Bilkie, president of Sigma Investment Counselors in Southfield, Mich., which manages about $500 million in assets.

Bilkie said he’s taken calls from a couple of his more nervous clients who wanted to be reassured that another tough bear market isn’t around the corner.

Some investors, he said, were wondering whether we’re heading into another 2008.

“I don’t think we are,” Bilkie said.

Christopher Ruth, chief market strategist for Comerica Asset Management in Birmingham, said investors shouldn’t panic – or downplay all the risks completely and decide to invest aggressively because they believe that everything will work out.

The possibility for higher stock prices could improve, he said, if global concerns don’t escalate and if first-quarter earnings can come in better than expected.

What kind of a year will we see in 2011? We might not have a good answer for that one until long into summer.


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