Top 10 investment trends to watch in 2011

The bull market is entering its third year, historically a time when investors grow wary. They’ll have good reason for caution in 2011, given the potential for higher interest rates, federal budget struggles, a surge in commodity prices, and the challenges corporations may find in churning out higher and higher profits. These stresses won’t necessarily end the party on Wall Street, just change it. Here are 10 investment trends to watch for in 2011:

1. Investors shift to the defensive

Mike Segar/Reuters/File
Nike Chief Executive Officer Mark Parker speaks at the Nike Investor meeting event in New York in this May 5, 2010, file photo. In December, Nike posted future orders data that missed many analysts' expectations. Typically, in the third year of a bull market, investors turn more defensive.

The third year of bull markets can be a time of transition. As the year goes on many investors begin to shift from stocks that have appreciated sharply over the past two years into a more defensive stance, says Sam Stovall, chief investment strategist at Standard & Poor’s Equity Research in New York.

“As investors question the sustainability of the aging bull market, they would rather embrace sectors where the demand is fairly static,” says Mr. Stovall. “That is why investors gravitate towards energy, consumer staples, health care and utilities.”

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