As a way of discussing our economic and market views for the coming year, we present our 10 predictions for 2011: 1. US growth accelerates as US real GDP reaches a new all-time high. 2. The US economy creates two to three million jobs in 2011 as the unemployment rate falls to 9%. 3. US stocks experience a third year of double-digit percentage returns for the first time in more than a decade as earnings reach a new all-time high. 4. Stocks outperform bonds and cash. 5. The US stock market outperforms the MSCI World Index.

As the year is winding to a close, we thought it would be a good opportunity to take a look back at the predictions we made at the beginning of 2010 to see how they are shaping up. We didn?t get them all exactly right, but most of our predictions were on track.

In this report, Bob Doll, BlackRock's Chief Equity Strategist for Fundamental Equities and head of the US Large Cap Series equity team, homes in on some of the most striking points of comparison between the two countries' situations and experiences to support the contention that the United States will avoid Japan's fate.

Recent economic data has continued to be generally positive, with highlights including some decent consumer spending figures. In addition to accelerating growth trends in the US, most areas of the world have also shown signs of economic improvement in recent weeks. The concern about the European debt situation has been relatively muted as of late, and while these issues will likely continue to surface into the New Year, the difference between the Greek debt crisis of a few months ago and what is happening today is that now the global economy as a whole appears to be on firmer footing.

We think it is important that the correlations among asset classes have continued to fall, an indicator that investors are beginning to seek value across different investment areas rather than all herding to the same investments and limiting profit potential. Even within equities, it seems that investors are demonstrating healthy behavior by becoming discriminating and breaking out of patterns. Investors seem to be moving away from responding to increased macro risks by selling and lessened risks by buying ? this is a positive development.

Downward pressure on the markets is coming from a number of sources, including geopolitical risk in the form of heightened conflict between North and South Korea, the deepening of the European debt crisis, policy tightening in China, an FBI-led investigation of insider trading, confusion over the implementation of quantitative easing and weakening housing market data. While we recognize that all of these issues represent downside risks for the market, we believe that stocks are in the midst of a normal corrective phase and that the longer-term trend remains positive.

We believe that equity markets should continue to head unevenly higher over the next several months. Earnings expectations have been on an upward trend and the economic backdrop seems to be improving. Economic projections were weaker in the Apr to Aug period, stabilized in Sept and Oct and have since been moving higher. Our view is that global growth will continue to improve in 2011. There are a number of risks; ongoing sovereign debt issues, escalating inflation in China and the potential breakdown in global policy coordination, but our baseline scenario is for a continued cyclical recovery.

Last week?s market correction was, in many ways, somewhat overdue. Both stocks and commodities have experienced significant price appreciation and the US dollar had become oversold, so it should not be surprising to see some sort of reversal in these trends. The risks of a double dip recession are in the process of vanishing. As the recovery continues to move along, our outlook is that the trend of risk asset prices moving higher is likely to continue.

In our view, the strength of the GOP victory makes it quite likely that Congress will push through some extension of the Bush-era tax cuts, which are set to expire at the end of 2010. We expect the Fed to continue to be aggressive in terms of combating deflation and promoting economic growth, at least until it sees a downturn in the unemployment rate. Deflation is a more present risk than inflation, but the environment will eventually be moving to the other side of that risk spectrum. The valuations and earnings backdrop also suggests that stocks should be headed higher.

For the past couple of years, deflationary pressures and deleveraging risks have been front and center in the debate over the future direction of economic growth, and as the pending arrival of additional easing measures shows, these forces are still highly present. The worst of the deleveraging situation is now in the past, however, and the future growth impact of deleveraging will be less than it was over the past two years. The falling dollar higher commodity prices and the addition of more quantitative easing should prime the pump for inflationary pressures to begin increasing.

Over the long term, modest levels of growth should be enough to allow corporate earnings to continue to make gains and push markets higher. However, because stock markets have advanced so strongly over the past several weeks (at least in part over expectations of additional easing), we may be looking at a classic 'buy the rumor, sell the news' scenario that could cause a near-term setback at some point later this year. In any case, the economic, earnings and valuation backdrop makes for an attractive longer-term case for equities.

Over the long term, modest levels of growth should be enough to allow corporate earnings to continue to make gains and push markets higher. Because stock markets have advanced so strongly over the past several weeks, however, we may be looking at a classic 'buy the rumor, sell the news' scenario that could cause a near-term setback at some point later this year. In any case, the economic, earnings and valuation backdrop makes for an attractive longer-term case for equities.

Despite the fact that Treasury yields have moved lower in recent weeks, the Fed's actions will help reduce deflationary risks and will help global economic growth. Stock markets and commodity prices have been pricing in inflation; those markets have it right in that central banks will do what is necessary to fight deflationary forces. The intentions of central bankers are quite clear at present, and this appears to be a case where the old saying 'don't fight the Fed' seems prudent advice: From an investment perspective, risk assets should continue to grind higher.

In the short term, continued caution is warranted given the high levels of uncertainty, especially considering the rebound in investor sentiment we have seen, coincident with equities rising 10 percent from their lows about a month ago. Still, assuming the United States does avoid a double-dip recession, and that Europe continues to avert a renewed financial crisis, investors with long-term horizons should look past the short-term tactical issues and focus on the fact that equity valuations appear attractive, especially relative to bonds.

The macroeconomic backdrop seems improved compared to one month ago. Economic data has moved from 'bad' to 'less bad' (if not to 'good'), and the rhetoric from Washington, D.C. has recently focused on some pro-business and tax policies. Optimism is growing that with the upcoming midterm elections, investors may be seeing some more equity-friendly policies in the works. BlackRock remains optimistic that the economy will avoid a double-dip recession, and stocks should continue to grind higher.

Absent any significant economic disappointments, stocks are likely to continue to make gains in the weeks ahead. Although investors have begun to re-enter the markets, however, most still have lower-than-normal levels of equity exposure in their portfolios and are waiting for clearer signs that the economy has regained strength before rebuilding their stock positions. Nonetheless, equity valuations are attractive and, looking ahead, stocks appear likely to outperform Treasury bonds and cash over a two- to three-year time horizon.

Last week saw a drop in jobless claims, a narrowing of the trade balance and an increase in wholesale inventories, all of which suggests that the economic recovery remains intact. Although market performance has improved slightly over the past couple of weeks, stocks remain in a trading range. Ultimately, stocks will break out of their current stalemate, either to the positive side or to the negative. BlackRock is in the former camp, but acknowledges that investors will need to see clearer evidence that the double-dip scenario will not emerge before that can happen.

Equity markets have been shaky in recent months, but the tightening of financial conditions that occurred in the spring and summer appears to be reversing somewhat, which should act as an important stabilizing force. At present, stocks are attractively valued and are on the cheap side - the S&P 500 Index is trading at 11.5 times forward consensus earnings, and the dividend yield for stocks is close to the yield of the 10-year Treasury bond. While no dramatic breakout of the current trading range should come any time soon, the path of least resistance for stocks continues to be up.

While the recovery has been slow, we have made significant progress. On a real basis, U.S. gross domestic product has regained 70 percent of what was lost during the recession and on a nominal basis, GDP has regained all of it, meaning that the United States is in a nominal expansion. In any case, investors in U.S. stocks can expect continued volatility ahead. The S&P 500 Index has remained in a rough trading range of between 1,020 and 1,120. While a dramatic breakout from this range is unlikely for now, as economic conditions slowly improve, the positive forces should win out.

The sharp pullback in bond yields throughout the past couple of weeks suggests that fixed income markets are discounting a return to recession conditions. In contrast, the relative resilience of the stock market suggests that equities are discounting a milder slowdown in the pace of recovery. BlackRock believes that fixed income markets are overly pessimistic, but acknowledges that it will take some time to work all of this out, meaning that stocks are likely to remain in a trading range.

The past couple of months have been difficult for investors, but we are holding to our view that the recovery will continue and stocks will gain ground. Bob Doll, Vice Chairman and Chief Equity Strategist for Fundamental Equities at BlackRock, discusses the current situation, the predictions he made at the beginning of 2010 and opportunity in the financial markets for the second half of the year. We thank BlackRock for their sponsorship.

The outlook for stocks will be highly dependent on the direction of the economy. Despite last week's decline in both equity prices and Treasury yields, financial markets are signaling that the worst of the deflation scare is ending and that renewed recession is unlikely. A strong current of skepticism is likely to persist for some time, and volatility levels will likely remain elevated, but as long as the economy does not retreat back into recession, stocks should be able to continue to make gains.

Many risks remain to the current cautiously optimistic outlook, including the failure of the housing market to stage a meaningful recovery, the need for ongoing consumer deleveraging and the move toward fiscal austerity in many markets. As long as the economy does not fall back into recession, however, equity markets should be able to grind higher over time. Economic growth of around 2 percent should be enough to allow corporate earnings to continue to grow, and that backdrop, combined with still-attractive valuations, should make for an equity-friendly environment.

Market volatility has remained elevated over the past several months as investors remain uncertain about the future direction of global and U.S. economic growth. There is a lack of conviction and confidence on the part of businesses, consumers and investors, but as long as the economy does not slide back into recession, corporations should be able to continue to grow their earnings. A combination of positive (if slow) economic growth, solid corporate earnings and attractive equity market valuations should be enough to restore some positive momentum in equity markets over time.

A sustained, albeit subpar, economic recovery is in the cards. Neither critical equity sectors nor credit spreads are signaling that the recovery has been derailed, which suggests that the cyclical recovery in corporate profits is not over. Still, the US economy continues to face significant headwinds, giving us reason to believe that the move higher in equity and other risk asset prices will likely be a long, hard grind characterized by continued volatility.

Stock prices have corrected sharply since mid-April and have remained in a broad trading range for the past several weeks. Equity markets appear to be caught between a number of positive and negative forces. Over time, the positive forces should win out and stocks should grind higher, but it would not be surprising to see equity markets remain in their current trading range until there is more clarity around the severity of the current economic slowdown.

With 20/20 hindsight, it seems clear that investor expectations for the economy and earnings were too optimistic during the first four months of 2010, but overall sentiment also grew too pessimistic in the subsequent couple of months. The current low levels of Treasury yields are unsustainable. Either yields will move higher as investors become more risk tolerant or economic fundamentals will deteriorate. The former is more likely, however, and as long as our view about the economy holds, equity markets will be able to grind higher in the months ahead.

Over the long term, policymakers still have a difficult job to do as they work to unwind the massive amount of stimulus that had been injected into the system without causing either inflation issues or renewed deflation threats. Over the short term, the broad macro environment will continue to be buffeted by financial and economic uncertainty that will keep volatility levels elevated. That said, the odds for a double-dip recession are low. As long as a renewed economic contraction is avoided, equity prices should grind higher over time.

We entered 2010 expecting a modest cyclical recovery countered by the structural problems that faced most of the developed world. For the first part of the year, the cyclical recovery did dominate, but in recent months, structural problems (especially those in Europe) began to win out and risk assets have been struggling. Now at the mid-year point, we thought it would be a good opportunity to take a look back at the predictions we made at the beginning of the year to see where we stand.

Equity markets should be able to make additional gains over the course of this year. This outlook is not so much a forecast of significantly improving economic news as it is an expectation that many of the risks facing investors will fade over the coming months. The direction of financial regulatory reform in the United States should become clearer and the slowdown in Chinese growth should result in a soft landing. The uncertainty surrounding European sovereign debt, however, remains the chief wild card.

Equities have already priced in the likelihood of somewhat slower economic growth in the coming months. Volatility measures will remain high because markets still remain subject to many risks, not the least of which is the high degree of uncertainty surrounding the European debt crisis. In any case, the bulk of the current correction should be behind us, while the positive macro backdrop and improving valuations will provide a floor for equity prices. Investors will need to remain patient, since it will still take some time before base-building can allow markets to regain ground.

Markets remain caught in a tug of war between reasonably strong economic fundamentals and escalating threats of external shocks. As long as the world economy does not sink back into an unlikely recession, however, equity markets should be able to weather the current period of uncertainty. The economic recovery should continue, although the pace should be relatively slow and interrupted along the way by periods of disappointing data. Investors will need to see a recovery in European debt markets and evidence that contagion can be contained before confidence can be restored.

In previous business cycles, when credit market pressures surfaced at a time when the yield curve was steep, the economy experienced brief slowdowns, but not recessions. If that is also the case today, then what we are looking at should be a temporary slowdown in growth, but not a double-dip recession. Nervous investors and slowly receding uncertainty levels will keep market volatility high over the coming month. However, should the labor market recovery continue, the backdrop of strengthening corporate profits and a recovering economy should push equity prices higher.

The worst of the downturn should be behind us, but it will likely take some additional time before markets can repair themselves. Looking ahead, one positive factor is that market valuations have become more attractive in recent weeks, as prices have dropped while earnings have increased. Over time, additional clarity around the situation in Europe and financial market reform in the US should provide a measure of stability; and a sense that the economic recovery remains on track should help spark a turnaround in the recent aversion to higher-risk assets.

Investors have grown increasingly concerned about the potential for contagion from Europe, fearing credit issues could affect other markets. While European Union rescue plans do not address the underlying fundamental issues facing Greece and other countries, however, immediate liquidity risks should be contained in the short term. On a relative basis, U.S. markets have benefited from the uncertainty, as investors have continued to view the United States as a higher-quality haven for their assets. This makes U.S. stocks more attractive than those of other developed markets.

Given the sharpness of recent trading swings, many investors will continue to approach the markets with caution. Markets remain under pressure as a result of the sovereign debt issues in Europe, policy tightening in China and elsewhere, and uncertainty surrounding pending regulations for the financial services sector. The positive forces of improving economic growth, however, including an absence of inflation, low interest rates and stronger corporate earnings, should continue to move markets higher.

Before last week, the rapid ascent in equity prices had been a cause for concern, and as last week's downturn shows, markets remain vulnerable to corrective forces. To date, the problems of the sovereign debt crisis, global policy tightening and regulatory restrictions have been outweighed by the broader improvements in the global economy and rising corporate profits. Given the low returns offered by cash and the still-reasonable valuations for stocks, this trend should continue.

Following the stock market lows of March 2009, the bull market that commenced was, at first, driven by government action and increased liquidity. Since that time, stocks have been advancing based on the reality of fundamental improvements in global economic growth and corporate earnings. The key risk to stocks remains the possibility that the economic recovery will become derailed. While deleveraging threats remain and the banking system is still operating in a credit-impaired environment, BlackRock does not expect to see a double-dip recession.

Stocks have rallied in an almost uninterrupted fashion over the past couple of months, but the tenor of Friday's news adds an element of uncertainty. This backdrop, combined with various signs of excess in the markets, suggests that a period of profit-taking may be coming, perhaps sooner rather than later. In any case, however, the recovering economy, low inflation, strong corporate earnings and reasonable valuation levels should be enough to cause any sort of correction to be short-lived.

Continued evidence of improvements in the economy and expectations for strong first-quarter earnings helped push stocks up nearly 8 percent for the year, to their highest levels in 18 months. BlackRock expects stocks to continue to grind higher over the course of the year, and for corporate earnings to become the main driver of equity prices. Over the longer term, the most significant investment issue will likely be the cyclical tailwinds of accommodative fiscal and monetary policy and the secular headwinds of massive budget deficits, high levels of debt and continued deleveraging.

The March payrolls report likely signaled the start of a long-awaited rebound in the employment picture, which should benefit the broader economy. As fiscal and monetary stimulus begins to fade over the coming months, the economy is going to require some self-sustaining mechanisms to kick in, and growing employment levels would certainly be beneficial. Over the course of the next year, we expect the economy to successfully shift from a recovery to an expansion. Investors should continue overweighting equities and credit-related fixed income assets and underweighting cash and Treasury bonds.

The current environment is one of a broadening global economic recovery marked by improving corporate earnings, low interest rates, increasing business and consumer confidence, and a labor market that should soon turn positive. Markets have turned increasingly bullish on the chances for economic growth. Stocks may have gotten ahead of themselves in the short term, however, as some technical indicators now look stretched. Nevertheless, an ample amount of cash remains on the sidelines and the macro backdrop suggests that the long-term path of least resistance for stocks continues to be up.

The jobs-shedding phase appears to have ended, but new jobs are still not being created. Unemployment claims have declined in March, however, and so this scenario may soon reverse. Temporary employment has increased, and many firms have discussed plans for permanent hiring. Factoring in census hiring, payrolls may increase by more than 200,000 this month. Once jobs growth commences in earnest, corporate earnings should also increase and investor uncertainty should diminish, and this should drive the next cyclical bull market in equities.

Equity markets notched positive returns again last week, as the Dow Jones Industrial Average climbed 0.6% to 10,625, the S&P 500 Index advanced 1.0% to 1,150 and the Nasdaq Composite rose 1.8% to 2,368. Economic growth should continue to improve, which should provide a boost to investor confidence. Additionally, merger and acquisition activity has picked up strongly in recent weeks, as have corporate share buybacks, trends that help promote an equity-friendly environment. On balance, equity markets should endure ongoing periods of volatility, but the cyclical bull market has further to run.

Last week was strong for risk assets, and equities in particular, as the broad U.S. averages entered positive territory for the first time since early January. All sectors were positive, with materials up the most at 6 percent. A profits-led recovery seems to be unfolding, which will lead to increases in capital expenditures, and eventually, employment. After six negative weeks, flows in equities have been positive for three weeks running. Accommodative liquidity conditions and a healing economy support a pro-growth investment stance.

The economic recovery remains intact, but data remains mixed and outlooks are still uncertain. Employment trends remain the most critical economic data, because the labor market is the mechanism that sustains and reinforces growth. At present, corporate earnings and balance sheets are supportive of companies increasing their payrolls. Trading remains uneven, but higher-risk assets still hold long-term upside potential.