After a year in which stocks were quite volatile and the S&P 500 Index returned only 15 percent, my research indicates that stocks will trend substantially higher during 2011 than their current levels, as worldwide economic conditions continue to improve and economies in most regions of world expand at a much faster pace than they did during 2010.

That forecast is based, primarily, on the following:

• The Employment Situation: Numerous factors suggest that the employment situation in the United States will improve considerably during the current year.

For example, claims for unemployment benefits declined sharply during the past four months, employers increased both the total number of hours and overtime hours that their employees worked during November (the latest month for which data is currently available), and employers posted more job advertisements at Internet websites during each of the past three months.


• Household Debt and Net Worth: The debt and net worth of American households improved considerably during 2010, as Americans reduced their debt, relative to their income, to the lowest level since 1998, and the value of their financial-market investments rebounded.

• Expectations Regarding Future Economic Conditions: The expectations of American households and business owners improved considerably during the past few months, as a result, primarily, of recent improvements in the employment situation and the overall economy, and because many Americans and business owners think that newly elected members of the U.S. Congress will strive to enact some prudent economic legislation during the current year. That legislation would likely include measures to reduce the size of the federal budget deficit and measures to incentivize businesses to increase the sizes of the workforces and to expand their operating activities.

Two such measures were already included in the recently enacted tax bill, with the Congress reducing the payroll tax by two percentage points for this year and allowing businesses to deduct 100 percent of their expenditures on machinery and equipment during the current year on their 2011 income taxes.

• Corporate Profits: Corporate profits, in the aggregate, will likely continue to rise during the current year, as a result of improvements in the economy and because most companies will be able to maintain their labor expenses near current levels throughout 2011.

There’s already ample evidence to support my forecast, with manufacturing in both the United States and many other regions of the world increasing substantially during the past few months, auto sales in those same regions of the world rising sharply during the past four months, and household spending on consumer goods and services also increasing substantially during the past few months.

Meanwhile, a substantial number of leading economic indicators suggest that worldwide economic growth will accelerate during at least the next few months.

Therefore, I urge those of you who currently have a large portion of your financial-market assets invested in bond funds to sell those funds and to invest the proceeds of those sales in equity securities.