1. The U.S. stock market outperforms most other markets, as the U.S. economy improves.
2. The laggards of 2010 outperform the overall market in 2011.
Banks, for one, benefit as legislation risk abates. The group has notably underperformed in the past three years and we may be nearing the end rather than the beginning of Eurozone financial regulation and general turmoil. Defense stocks are another leader as an ongoing need for combat vehicles and planes for global conflicts reduces the defense budget less than anticipated.
3. Mexican stocks hit a record high.
The Mexico City bolsa rallies again to historic highs as the U.S. sends military aid and covert military personnel to Mexico to fight the drug lords; Pemex shuts gas fields due to security concerns.
4. Gold declines but other commodities gain.
The gold bubble finally bursts, with gold stocks falling 20 percent, but other commodities and commodity stocks continue to outperform as global demand for copper and other base metals improves.
5. The U.S. bond market drops.
The Fed's current QE2 and anticipated QE3 are largely ineffective as bond vigilantes force rates up in the Fed's face due to inflation worries and better U.S. economic growth. Three years of inflows into bond funds reverses.
Municipal bonds come under pressure as a half-dozen local governments default on their general obligation bonds. Though tax flows are improving, federal, state and municipal spending cuts will pressure governments even more in 2011 than 2010