Americans happy to see the back of difficult 2010

In the US, many people are happy to have seen the back of 2010, a year characterised by stubbornly high unemployment, sluggish growth. Now investors hope positive indicators at the end of last year means a solid recovery is taking hold.

There are reasons to be bullish on the US economy's continued recovery. Richard Drew / AP Photo

Investors in the US are hoping that some positive indicators at the end of last year mean a solid recovery is taking hold. The stock markets look promising anyway
In the US, many people are happy to have seen the back of 2010, a year characterised by stubbornly high unemployment, sluggish growth, with the federal government struggling under the weight of an enormous deficit.
It is a gloomy environment, but for one thing. US stock markets are powering ahead. Last Wednesday, the S&P 500 reached its highest level since September 8 2008, and the Dow Jones Industrial Average reached its highest close since August 28 2008, a time before Lehman Brothers went under and losses at AIG and others precipitated a market collapse that imploded the savings of many Americans.
The recovery was not entirely unexpected. Share prices have risen considerably since the Fed announced its latest round of quantitative easing and bond buy-backs last month. And last month's compromise agreement between the Obama administration and congressional Republicans, which extended the Bush-era tax cuts for the wealthiest Americans in return for a further extension in unemployment benefits, has also increased market confidence.
But will this rally continue this year? There are some reasons to be bullish. US numbers released at the end of last month, including initial jobless claims and pending home sales, bore more promising news than the market has seen in some time. US GDP growth has also recovered to levels not seen since the recession, US consumer confidence is up and US consumer spending also rose in November.
However, it is also true that the stock market surge predated any of this good news, suggesting that investor optimism that economic conditions would improve is already reflected in current prices.
So many commentators believe that it is way too early to celebrate. Interest rates are up, making borrowing and most notable, mortgages, more expensive, and the cost of oil is currently above US$90 a barrel. Although this is currently driving up the value of oil stocks and indicates a recovery in global demand, a continuing rise in oil prices could dent a recovery in discretionary consumer spending. Taking economic indicators as a whole, there are as many reasons to do nothing or sell as there are to plough more money into US stocks.
Maybe Americans are buying shares, not because they are particularly bullish about a rally, but just because returns elsewhere are depressingly low. Yields on corporate bonds, let alone Treasuries, are still near rock bottom. The average yield on a corporate investment grade bonds around the world, which sank to a record low in October, is currently 3.92 per cent, according to Merrill Lynch's Global Broad Market Corporate Index.
Or maybe it is time to accept the prosaic fact that Americans are not the most creative or proactive bunch when it comes to investing. A survey last year by HSBC bank, which polled its consumers in eight cities around the world, found that American investors have hardly changed their portfolio allocations since 2008.
The average US investor still had 32 per cent of his or her money parked in mutual funds, 18 per cent in retirement products and the rest in cash or money market funds, whereas respondents in Hong Kong, London and Sao Paulo were more willing to invest in real estate, collectables and other alternative investments. This was despite the fact that some 56 per cent of survey respondents in the US said they had lost money on their portfolios during this time, compared with 19 per cent of respondents in Hong Kong, 28 per cent in Sao Paulo and 37 per cent in Sydney.
Regulators in the US may have learned some lessons about what brought the financial system to its knees in 2008, but if we question what US investors have learned since the global economic downturn, the answer seems to be not much at all.
Yet the one thing that everyone should have figured out by now is not to bank on an ongoing stock market rally. The end of 2010 is certainly no exception.
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