The markets seem to be starting off the New Year in style, with more optimism and higher gains; however, they're still tempered with the conflicting news from companies and government reports. There were a lot of winners in 2010, and 2011 might see a number of exciting events in the financial world. For one, there will be the preparation for Facebook finally going public, American automakers may have fixed some of the problems plaguing their industry, and a forecast of increased employment will certainly be a good thing for most industries throughout the United States.
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Since the recession has been (technically) over for more than a year, maybe 2011 will be the time when we all feel the effects of robust retail and job markets. As always, only time will tell. (Miss last week's news? Catch up with, Water Cooler Finance: Goodbye 2010 (And Good Riddance?).)
Let's start with the positive financial news for the week; the DJIA ended up 97.25 points this week, and is up over 5% for the past six weeks. According to the Wall Street Journal, when the Dow is up for the first week of the year, it is a good indicator of how the year will end. So perhaps investors should get used to a more optimistic stock market. On Monday, the Dow kicked off the year by hitting a two-year high, and ended the week even higher at 11674.76. For most investors the obvious question is: what is sending the Dow higher, and why? What has changed? (To learn more, see An Introduction To The Dow Jones Industrial Average.)
Early in the week, there was the release that private sector jobs were gaining, which always leads to increased optimism as there is the implication that more people are working, and thus have more to spend. However, this was not the reality, and when the job report was released on Thursday, it showed an increase in initial unemployment claims. This sent the markets down, somewhat, although there is still an overall improving trend in the job market, according to Jennifer Lee, senior economist at BMO Capital Economics.
When the hiring report came out on Friday, it showed that the unemployment rate had actually fallen 0.4%, which seems like good news, but many economists say that the 103,000 jobs added in December were just enough to keep pace with the growing available workforce, and didn't add any material growth to the job market. As well, it was noted that the declining employment rate was partially due to discouraged workers - those that had given up looking for jobs and are no longer included in the unemployment figures.
Along with the job figures, banks led the Dow downward at the end of the week, due to increasing foreclosure problems. The tech sector was the biggest gainer of the week, and the American automakers all showed higher-than-expected sales for December.
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2011's Rosy Outlook
Though there seemed to be some trepidation at the end of the week, there was still a positive outlook for the job market and economy in 2011. According to CNN, a large group of economists believe that 2011 will see a marked increase in employment, even if it's not totally reflected in the employment rate. Though the economists polled believe that the unemployment rate will only fall to 9%; that's still an addition of 2.5 million jobs, which the article notes is the same number of jobs that were added during the "white hot labor market of 1999."
Facebook and LinkedIn - Impending IPOs
Speaking of the '90s, the frenzy surrounding the possible Facebook IPO was very reminiscent of a certain excitement and optimism that surrounded dotcom companies more than a decade ago. After Goldman Sachs (NYSE:GS) and a Russian investor Digital Skies Technology pumped a half of a billion dollars into Facebook last week, the company is now being valued by Goldman at $50 billion, according to CNN, which is worth more than companies like Time Warner (NYSE:TWX), Ebay (Nasdaq:EBAY) and Yahoo! (Nasdaq:YHOO).
Since Goldman's investment, the bank has been inundated with calls and requests from clients to get in on the newest dotcom action by buying shares of the company before it goes public next year, according to the Wall Street Journal. The WSJ also rightly points out that with so much excitement and action surrounding Facebook, there probably isn't a whole lot of room for investors to make any money on the IPO, as the demand for Facebook stock has already priced in any short-term upside potential.
In related but less exciting news, LinkedIn has announced that it is planning an IPO this year, according to the Wall Street Journal. With underwriters already in place, this IPO will probably happen without the fanfare of the Facebook one, and may actually mean that there is money to be made for investors who get in early. (To learn more, check out our IPO Basics Tutorial.)
The Bottom Line
It's been a conflicting but somewhat positive start to the year, and with forecasted employment growth, robust tech and automakers, and some serious social media stock action, 2011 will be an exciting year in the financial markets. (For a look ahead of what to expect in the new year, check out Your Best Investment For 2011.)