Four Big Stories Tell The Tale


All four of the news stories summarized below moved the market this year, and their developments should continue to affect stocks in 2011.

Consumers still skittish

The University of Michigan Consumer Sentiment Index reached a five-month high in December, but confidence still remains well below the long-term average. Americans remain somewhat cautious in their consumption, though holiday spending appears to be rising this year. Usage of credit cards, once accounting for about a quarter of the banking industry’s profits, is down, as are the balances left on them. On the positive side, banks and credit-card companies continue to report lower delinquency rates, an indication that losses on consumer credit are beginning to ease.

Housing recovery sputters

A full consumer recovery may remain out of reach without a bounce in the housing market. Home sales fell 21% in the September quarter, and half of U.S. metropolitan areas saw home prices fall. Nearly 60% of U.S. adults see the housing recovery as at least two years away. Even flat pricing would be a positive if transaction volumes improve, as the inability to sell homes ties up a major portion of many consumers’ wealth.

Technology evolution

In 2011, technology giants that built their reputations on the personal computer (PC) will continue to invade the mobile-device market. Meanwhile, Research In Motion ($60; RIMM) and other phone makers wade deeper into the computer business. No one has managed a smoother transition than Apple ($320; AAPL), with its iPhone and iPad tablet computer.

It will be interesting to observe how rivals adapt their technologies, including Microsoft ($28; MSFT) licensing its operating system, Intel ($21; INTC) supplying the semiconductors, and Hewlett-Packard ($42; HPQ) manufacturing the equipment. Worries about tablets cannibalizing PC sales might seem less important a year from now as the devices become more difficult to distinguish.

Prescription for weak growth

Looming patent expirations for blockbuster drugs is a well-documented problem. But drugmakers also contend with another issue: Americans are balking at buying prescription drugs. The number of patients who refused to pay for prescriptions filled and packaged at pharmacies rose 55% in the June quarter from four years earlier. Nearly 10% of new prescriptions for brand-name drugs were abandoned in the quarter.

The problem affects more than drugmakers, as Americans cut back on all types of medical services. High unemployment figures prominently into that trend, but the numbers could also illustrate a systemic shift in how medical expenses are paid. Health care, particularly preventative care, may no longer be viewed as a necessity, becoming just one more commodity vying for a piece of the household budget.

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