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Investing Specialists

Our Ultimate Stock-Pickers' Top 10 Buys and Sells

The market rally has made it much harder for our managers to put money to work.

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By Greggory Warren, CFA | Senior Stock Analyst

The end of the fourth quarter of 2010 and start of this year's first quarter witnessed strong equity market performance, with the S&P 500 Index (SPX) up more than 15% over the last five months. It also marks the continuation of the rally that started in March 2009, which has led to a doubling of the index over the last two years. While the equity markets continue to respond to the economic recovery, which has moved forward in fits and starts, it was the change of control in Congress, as well as in many state capitals, that influenced the markets during the final quarter of 2010. Investors were encouraged by the thought of gridlock in the nation's capital, especially if it led to a reduction in the deficit (not to mention the national debt), and a more business friendly environment.

That said, last year's elections also spooked the municipal bond market, as many investors began to believe that state and local governments, which have had their tax revenues savaged over the last couple of years, would no longer be backstopped by the federal government. It also didn't help that several prominent politicians were calling for measures that would allow state and local governments to file for bankruptcy as a way of overcoming their budget woes. The nearly $20 billion in outflows seen at municipal bond funds during the fourth quarter of 2010 (and more than $30 billion since the start of October) was greater than the $14 billion that walked away from the segment during the final four months of 2008.

The Morningstar Ultimate Stock-Pickers Team does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.