My wife calls me a Grinch because I hate to decorate for the holidays; decorating seems like a lot of effort considering that every Christmas light and ornament will be packed back up in a few weeks. But I love spending this time of year with friends and family. One of the ways I celebrate the holidays is to disconnect from the market and market-related news, something that’s easier said than done. I managed to keep my eyes off the market news scroll during Christmas, but with the new year approaching it’s time to get back to work.

This was clearly a better year for equities than many market watchers had expected. The S&P 500 is about to lock in gains of about 13 percent for 2010. Technology stocks, as measured by the NASDAQ, returned more than 17 percent and the Dow Jones Transportation Average rose by more than 25 percent. All told, it was a respectable year for the markets.

Gross domestic product (GDP) growth was more robust than expected, clocking in at about 3 percent, a figure that more than makes up for the 2.6 percent year-over-year decline recorded in 2009. Not a bad performance for a year that saw the May 6 Flash Crash and a string of European sovereign debt crises.

As the recovery continues to plod along, most pundits forecast GDP growth of between 3 to 4 percent in 2011, as consumer spending has proven more resilient than expected. Now that the market’s had two good years in a row–the S&P 500 gained 23 percent in 2009–consumers are regaining their confidence and have turned in the strongest holiday spending figures since 2005.

Inflation is expected to rise to between 2 to 3 percent in 2011 as oil prices, currently in the $90 range, continue to climb. Many economists also expect the jobs situation to improve slowly through 2011. Worker productivity has been stretched to the max and employers will eventually have to add staff to meet recovering US consumer demand and the voracious appetites of emerging-markets consumers.

Next year will bring another strong performance for exchange-traded funds, though I doubt they’ll turn in the stellar gains we saw in 2009. Businesses investment was depressed during the recession and US corporations have been wary of deploying the almost $2 trillion in idle cash sitting on their balance sheets.

But these companies can only hoard cash for so long. More of these funds will be put to work in 2011 through attractive dividend payments and mergers and acquisitions activity. Many companies also may move to repurchase shares, which should bolster equities as fewer outstanding shares will improve paper earnings.

These signs of a slowly improving economy should help persuade consumers to spend, which in turn will only support the sustainability of the economic recovery. We may not return to the days of high-flying markets any time soon, but expect the economy to steadily improve in 2011.

What’s New

Even money managers take holidays; no new funds launched last week.