Steady economic improvement should fuel U.S. stock gains through 2011, according to a Reuters poll of investors and strategists, but international concerns could limit gains in the second half of the year.
Median forecasts from 50 respondents surveyed over the past week showed the Standard & Poor's 500 index rising to 1,285 by end of the first half of 2011, an improved outlook from a September survey, which had a target of 1,250.
"There are a number of powerful tailwinds supporting higher stock prices, including an accommodative Fed, a potentially more business and investor-friendly Washington, and a strong M&A cycle," said Jonathan Golub, chief U.S. equity strategist at UBS.
The S&P has surged more than 20 percent from a low reached in July, lifted by expanded monetary policies from the Federal Reserve, the midterm elections and improved economic data.
The poll was conducted before President Barack Obama approved a plan to extend tax cuts for all Americans, which boosted European and U.S. stocks while hitting benchmark Treasury bonds.
Europe's sovereign debt woes and China's attempts to curb inflation contributed to recent weakness, though clarity on a bailout for Ireland has partially eliminated that headwind.
Many analysts expect Europe's woes to hurt markets in 2011, and cite that as a reason why gains are expected to slow in the second half of the year.
Based on the S&P's Tuesday close of 1,223.75, the midyear target represents gains of about 5 percent. Analysts expect the index to end the year at 1,325, a more moderate increase than the first half of the year.
"The issues in Europe won't just disappear overnight; they'll take a year just to stabilize and could blow up on us at any moment," said JJ Kinahan, chief derivatives officer at TD Ameritrade in Chicago, who has a year-end target of 1,275.
He added that there was a fear that interest rates could begin moving up partway into 2011.
The spread of the forecasts for mid-year 2011 was 400 points, in a range of 1,040 to 1,440. Compared to last quarter's poll estimates, which had a range of 500 points, the latest survey suggests less uncertainty.
For the Dow Jones Industrial Average, the median estimate for the middle of the year is 12,050 among 23 respondents, which would translate into a gain of about 6 percent from Tuesday's close of 11,359.16. The new target is higher than the 11,620 forecast in the September survey.
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