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Advisers predict strong 2011 market<br> Investment experts are optimistic that good times on Wall Street will continue

The recovery could be in full swing on Wall Street next year.

With the recession officially over for almost a year-and-a-half and the stock market coming off double-digit gains this year, local investment advisers are optimistic that the good times on Wall Street will continue through 2011.

"We see good things. We're reasonably optimistic," said Stephen Robshaw, the president of Robshaw & Julian Associates, an Amherst money management firm.

If those local investment advisers are right -- and predicting the course of the stock market is a risky business even in the most stable of times -- then the stock market could be on a path for more double-digit gains in 2011, extending the market's rally well into its third year.

On average, the panel of nine local advisers expect the Dow Jones Industrial Average to have a slightly better-than-average year, with a 9 percent gain, while the more growth-oriented Nasdaq Composite index is forecast to jump by an even stronger 12 percent.

"I think next year will be an exceptional year for the market," said David Hartzell, the president of Cornell Capital Management, a Clarence money management firm, and one of the most bullish local advisers. Hartzell predicts a fast start for stocks in 2011 that could see the Dow Jones industrial average top its record high of 14,165 before falling back a bit in the second half.

"There are a lot of positives for the market and not many negatives," said Hartzell, who is predicting a 13 percent jump by the Dow and an 17 percent surge by the Nasdaq.

While the advisers generally aren't expecting the economy to hit full stride next year, they think it will gain a little more strength, which should provide a nice boost to profits at companies that aggressively cut costs and took steps to become more productive since the recession hit in 2007.

"We've seen the worst, and I think there are reasonable prospects for continued growth," said Lawrence V. Whistler, the chief investment officer at Nottingham Advisors, an Amherst money management firm.

"We're still in kind of a very moderate growth mode," said Gerald T. Cole, the managing partner at Arbor Capital Management, another Amherst money management firm, who is predicting an 8 percent rise in the Dow and a 13 percent jump by the Nasdaq.

"The hope is that industrial production and the consumer gradually comes back and pulls up the economy and rights some of the wobbly-kneed banks," Cole said.

>Fits and starts

Overall, the advisers think interest rates will remain at close to their current historic lows, although they could start to inch higher. They think the economy will grow in fits and starts, not rapidly enough to significantly reduce an unemployment rate that now stands at 9.5 percent, but still enough to instill more confidence in the recovery among consumers and executives.

They think the extension of the Bush-era tax cuts will keep more money in consumers' pockets and will encourage cash-laden companies to invest in capital improvements, further bolstering the economy.

And the Federal Reserve's stimulative monetary policies give stocks a nice tail wind heading into 2011, said Whistler, who expects a 10 percent jump by the Dow and a 12 percent rise by the Nasdaq.

Another boost for stocks could come from investors who flocked to bonds as stock prices tanked. Now those same investors may be tempted to move that money back into the market in search of higher dividend yields and the potential for bigger returns, as well as the greater growth potential that stocks traditionally offer.

"That's a very attractive combination," Cole said. "Stocks right now are just much more attractive than bonds."

Not only that, but the third year of a presidential term historically is good for stock prices.

"While increasing confidence will be a key element going forward, continued revenue and earnings growth will be the requisite catalyst for a more confident investor to emerge," said Bruce Kaz, the president of Courier Capital Corp., a Buffalo money management firm.

That kind of widespread optimism makes Anthony J. Ogorek nervous. "The thing that concerns me is that everyone seems to be bullish," said Ogorek, who runs Ogorek Wealth Management in Amherst.

>More volatility

Ogorek is predicting an 8 percent increase for both the Dow and the Nasdaq, which is among the least bullish forecasts from the local advisers. "My experience tells me that whenever the consensus is overwhelmingly on one side of the track, you want to be on the other," he said.

"Next year will be volatile again," said Joseph Curatolo, the president of Georgetown Capital Group, a Williamsville money management firm, who expects a fairly average year for the Dow, with a 7 percent gain and a stronger 13 percent jump by the Nasdaq.

Curatolo thinks the year will get off to a quick start, extending the year-end rally, although it may lose steam as 2011 goes on. "2011 will be a period of roller-coaster growth for the market, but as employment begins to pick up, the market should gain strength as well," he said.

While the stock market has rallied, the advisers generally think share prices remain at attractive valuations, relative to corporate earnings. So if an improving economy leads to increased corporate revenues, then profits should rise in tandem, which would be good for stock prices.

"They're still relatively undervalued," said Robshaw, who predicts a 9 percent jump by the Dow and a 13 percent gain by the Nasdaq. "Even with a 10 percent to 11 percent increase in share prices, that will just get them back to more normal valuation levels."

Still, after the market's rally since the spring of 2009, the pickings are getting a little tougher for investors.

"Asset levels are no longer cheap, so you're going to have to be a little more selective," said Tim Johnston, the managing partner at Sandhill Investment Management, a Buffalo money management firm, who thinks the Dow will rise by 10 percent and the Nasdaq by 13 percent next year.

>Some concerns

Another positive sign for the market is the Fed's continued efforts to keep interest rates low. "Do not fight an especially committed Fed," said Kaz, who is among the most bullish of the local advisers, predicting a 14 percent jump by the Dow and an 17 percent surge by the Nasdaq.

But the advisers also have some concerns that could hamper the stock market's advance.

Johnston and Whistler worry that the swelling federal budget deficits could eventually derail the stock market, although he doesn't think it will happen next year.

"At some point, we will hit a wall," said Johnson, who thinks the Dow will rise by 10 percent and the Nasdaq by 13 percent. "We're living on borrowed time."

The continued financial problems sweeping across much of Europe remain a problem, with Spain likely to join Ireland, Greece and Portugal as the latest EuroZone nation needing a bailout, Hartzell said.

In the United States, the advisers expect unemployment to stay high as job creation remains muted, and the housing market, while no longer in a free fall, will continue to be weak, especially with housing starts.

In spite of it all, Brian G. Cannon, the managing director at Dopkins Wealth Management in Williamsville, said it's more important for investors to have a long-term, low-cost, diversified investment plan that meets their individual needs, rather than to know where the broader market is headed.

>Rewards for investors

Investors can be pushed off course by forecasts, especially if they focus on the potential negatives. Cannon said an investor who last year accurately predicted the growing European financial crisis, a U.S. unemployment rate approaching 10 percent, oil prices approaching $90 per barrel, soaring gold prices and continued U.S. bank failures might have been tempted to pull out of stocks or cut back.

"Despite this tale of woe, investors in U.S. stocks were well-rewarded, especially well-rewarded if you invested in riskier asset classes of small and small value stocks," said Cannon, who predicts a 7 percent rise in the Dow and Nasdaq.

e-mail: drobinson@buffnews.com

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