RPT-Wall St Week Ahead-Investors placing bets on 2011

(Repeating column initially transmitted late Friday)

By Leah Schnurr

NEW YORK, Dec 19 (BestGrowthStock) – Investors will be taking
advantage next week of the some of the last remaining trading
days of the year to place their bets on what will be the
winners of 2011.

One of the defining characteristics of 2010 has been the
strong correlation across asset classes. Movements in the
dollar or in bonds had just as much impact on equities as more
fundamental factors, such as corporate outlooks.

The tight relationships came as investors focused on the
same factors — further stimulus from the Federal Reserve,
sovereign debt worries in the euro zone and the strength of the
economic recovery.

The macro focus has meant investors made the same trades
rather than differentiating individual sectors and industries.

“No matter how much work you put in trying to pick winners
and losers, the profit available from doing so was way below
normal,” said Charlie Blood, director of financial markets
strategy at Brown Brothers Harriman in New York.

Analysts expect that correlation to ease in the coming
year, allowing sectors to see more divergence and affording
investors more chances to outperform the market.

“It’s structurally just unsustainable to have that kind of
(correlation) because it doesn’t allow for diversification,”
said Nicholas Colas, chief market strategist at the ConvergEx
Group in New York.

“I do think it has to reverse — it’s just not a healthy
part of the capital market,” he said.

Even as investors reposition themselves, the broad market
is likely to drift until year-end with next week shortened by
the Christmas holiday.

Indeed, Wall Street’s fear gauge, the CBOE Volatility
index, or VIX (.VIX: ), on Friday fell to its lowest level since
April.

Investors will also take in a round of economic data next
week, including the final reading of gross domestic product for
the third quarter, new and existing home sales for November and
December consumer sentiment. For details, see [ECI/US]

TOO HOT TO HANDLE

Stocks that have been the best performers for the year are
already seeing a pullback, suggesting investors are happy to
lock in profits as they search for fresh opportunities.

Salesforce.com (CRM.N: ), one of the best-performing stocks
on the S&P 500 this year, has backed off this week, sliding 8.1
percent. Even so, the stock is up 85 percent for the year.

Mid-cap Netflix (NFLX.O: ), another investor favorite this
year, has shed 12.6 percent since the beginning of December,
though that still leaves the stock up some 226 percent this
year.

Similarly, small- and mid-cap indexes have outpaced blue
chips with the S&P MidCap 400 index (.MID: ) and S&P SmallCap 600
index (.SML: ) both up more than 24 percent in the year to date
compared to the S&P 500’s (.SPX: ) 11.6 percent gain.

But with valuations on smaller companies becoming
stretched, investors are likely to shift into blue-chip names
next year, said Bob Gorman, chief portfolio strategist at TD
Wealth Management in Toronto.

“The extent of the valuation gap would suggest to us you
probably start to see that rotation into bigger companies with
more consistent sales, earnings and dividend growth and that
are selling at lower multiples,” said Gorman.

Investors will also continue to put their faith in
technology shares next year on the expectation they will
benefit from corporate and consumer spending as well as strong
balance sheets.

The sector’s sensitivity to the economy made for a
lackluster performance for the sector overall this year with
the S&P tech sector (.GSPT: ) gaining 8.7 percent, though some of
the year’s best gainers were in the tech space.

Financials are starting to look favorable to some,
particularly with the possibility the large banks could resume
paying dividends next year, but others view the uncertainties
of financial reform as too much of a headwind.

Colas said he likes financials as a contrarian play,
noting: “They don’t seem to go down very much when the bad news
strikes and that’s usually a sign that it’s an OK contrarian
investment.”

Others are betting the less flashy industrials sector will
hold onto its leadership position next year after gaining 22.8
percent so far in 2010.

“They haven’t attracted the hot money like emerging markets
have or like the trendy consumer stocks or cloud computing
have,” said Derek Hernquist, chief investment officer of
Integrative Capital in Charlotte, North Carolina.

“When I see those major broad groups are attracting the
smooth, steady money flows that they are, it seems like it
would point to a healthier economy,” which is not fully priced
in yet, said Hernquist.

RPT-Wall St Week Ahead-Investors placing bets on 2011