In 2011 risk assets in general and equities in particular will draw strength from continued improvement in US economic growth—in particular, a more sustainable growth path—coupled with improved business and consumer confidence, and a less hostile capital markets attitude in Washington, DC, according to Doll.

“By the close of 2011, the S&P 500 Index will be at 1,350-plus, a target that implies that the market will appreciate at least in line with corporate earnings,” Doll said. The S&P 500 Index closed out 2010 at 1,257, rising over 15 per cent for the year.

“Our expected gains for the equity markets for 2011 are not much different from what we expected for 2010,” Doll said. “What’s different for 2011 is that market risk will be more to the upside than was the case in 2010.”

The possible upside factors include an acceleration in jobs gains, a surprise in real GDP, earnings exceeding expectations as occurred in 2010 and Washington DC beginning to address the nation’s fundamental debt and budget problems.

On the other hand, Doll’s “what can go wrong?” list includes the possibility of credit problems resurfacing , commodities price increases causing profit margin pressure, inflation fears, a greater than expected rise in interest rates, undue emerging markets tightening to curb asset bubbles, and currency and capital flow concerns leading to protectionist trade wars.

Doll indicated that the magnitude of the market return since the August 2010 lows means equity markets may have come too far, too quickly. “I do have a concern that the exceptionally strong returns we have seen over the last couple of months may mean that we ‘borrowed’ some of 2011’s returns in late 2010.”

“The upside possibilities could lead to stock market appreciation of 10 per cent to 20 per cent more than we expect,” Doll said. “The downside issues could result in low double-digit percentage loss.”

Doll has been publishing his annual “10 Predictions” for the year ahead in the financial markets and the economy for over a decade.

Here are Doll’s predictions for 2011:

-US growth accelerates as US Real GDP reaches a new all time high.

 -The US economy creates two to three million jobs in 2011 as unemployment falls to 9 per cent.

 -US stocks experience a third year of double-digit percentage returns for the first time in over a decade as earnings reach a new all time high.

-Stocks outperform bonds and cash.

 -The US stock market outperforms the MSCI World Index.

 -The US, Germany and Brazil outperform Japan, Spain and China.

 -Commodities and emerging market currencies outperform a basket of the dollar, euro and yen.

 -Strong balance sheets and free cash flow lead to significant increases in dividends, share buybacks, mergers and acquisitions and business reinvestment.

 -Investor flows move from bond funds to equity funds.

 -The 2012 Presidential campaign sees a plethora of Republican candidates while President Obama continues to move to the center.