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Halftime: Will 2011 Be a 'Subpar' Year?

Monday, 11 Oct 2010 | 1:38 PM ET

In midday trading Monday, the bulls got an unexpected shot in the arm when the National Association for Business Economics reduced its economic outlook for growth, jobs and inflation in 2011.

While you might not expect negative economic forecasts to help the bulls, the NABE's dark expectations for 2011 provided another reason for the Federal Reserve to stimulate the economy through quantitative easing.

Looking at the data, the NABE -- a 51-year-old group consisting of economists from across the country -- reduced GDP forecasts to 2.6 percent from 3.2 percent, reports CNBC's Steve Liesman. The NABE expects unemployment to climb to 9.2 percent from the 8.5 percent it previously forecast for the end of 2011.

Ironically, that will likely propel the market, at least for now. From the floor of the New York Stock Exchange, Stuart Frankel's Steve Grasso said the next level to watch is 1,172 -- as the S&P marches toward 1,200.

However, whether the S&P breaks above that level has everything to do with how much QE2 is already baked in the cake. A recent CNBC survey suggests the Street currently expects $500 billion.

However, Fed easing is not the only catalyst driving gains right now, reminds Grasso. There's also an expectation that the Republicans will win control of the House generating gridlock, which is good for markets.

The NABE also revealed dark expectations for inflation, job growth, Fed funds and housing starts. (See the chart below)

"This means they don't think we'll be firing on all cylinders even well into next year," said Liesman, adding that the data leads one to think 2011 could be a "subpar" year.

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Grasso would be a "nimble buyer" of the market Monday.

Patty Edwards, chief investment officer at Trutina Financial, thinks there are too many stocks in the S&P over bought. She would be "very cautious."

Stephen L. Weiss, author of "The Billion Dollar Mistake," is a buyer.

"I'm a reluctant buyer here. If the Fed is going to prop up all asset prices you have to be in the equity markets," said Kelly, adding that he would be careful. "Buy some puts if you're long."

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Trader disclosure: On Oct.11, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Grasso owns (ASTM), (BA), (BAC), (C), (CSCO), (JPM), (LPX), (MO), (MOT), (NDAQ), (PFE), (PRST)
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Accounts managed by Kanundrum Capital are short (HYG)
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Accounts managed by Kanundrum Capital are short Mexican Peso

For Steve Grasso:
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Stuart Frankel & Co and it’s partners own (CUBA)
Stuart Frankel & Co and it’s partners own (GERN)
Stuart Frankel & Co and it’s partners own (HPQ)
Stuart Frankel & Co and it’s partners own (HSPO)
Stuart Frankel & Co and it’s partners own (MERC)
Stuart Frankel & Co and it’s partners own (NWS.A)
Stuart Frankel & Co and it’s partners own (NYX)
Stuart Frankel & Co and it’s partners own (PDE)
Stuart Frankel & Co and it’s partners own (PFE)
Stuart Frankel & Co and it’s partners own (PRST)
Stuart Frankel & Co and it’s partners own (RDC)
Stuart Frankel & Co and it’s partners own (TLM)
Stuart Frankel & Co and it’s partners own (XRX)
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Stuart Frankel & Co and it’s partners are short (QQQQ)
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