Gurus see rally rolling on in 2010
Several of the investing gurus I keep an eye on are bullish as we head into the new year. But some say a correction may be coming.
After a stellar 2009, what should investors expect for the stock market in 2010? According to several of the gurus I follow, the answer is continued gains -- though with less swiftness and greater potential interruptions than we've seen so far in the rally.
Take Liz Ann Sonders, chief investment strategist at Charles Schwab. Sonders was one of the few to call the start of the recession, and she's been bullish during the big '09 surge. Now, she writes on Schwab's web site that she's bullish heading into 2010, and thinks the economy will surprise to the upside. She says strong growth in the developing world will help the U.S. economy. But, she adds, a correction for the market is overdue, and she says she "frankly would like to see one to improve the sentiment environment (remember, it works in a contrarian fashion).”
Mark Mobius of Templeton Asset Management also says to be ready for a correction. But he says not to be fooled into thinking a correction is the start of a big new bear market.
“In a secular bull market, where we are now, you will see corrections can be as much as 15-20 percent, but we shouldn’t be concerned that this represents a bear market,” Mobius told CNBC this week. Overall, he thinks stocks will head higher in 2010, though he doesn't think gains will be as great as they were in the last ten months of '09.
One of Morningstar's 2009 fund managers of the year, Bruce Berkowitz, is also sounding positive. “I’m optimistic about the economy — we are in the spring of a recovery,” Berkowitz told CNBC. “There may still be frost here and there, but the markets are thawing out and we have some wonderful companies in the portfolio that remain quite cheap in relationship to the cash that they generate for their owners.” He's particularly high on healthcare and financials, and also has interest in some real estate firms.
A couple gurus think we'll see a strong market for the first half of 2010, and then a slowdown. Louis Navellier, a growth stock specialist, told Bloomberg that he sees a very healthy earnings environment for the first five months of the year, and then a deceleration of growth. He thinks the market will fare well in that first portion of the year, and then become "much more" selective.
Steven Leuthold, the longtime bear who made out by shorting stocks in 2008, and then wisely turned bullish in '09, is also optimistic about the first half of 2010, but more pessimistic on the second half. He told Registered Rep. magazine that he expects the S&P 500 to gain another 20%, and then give those gains up in the second half. His firm is currently maintaining a 65% to 67% exposure to equities, near its maximum of 70%, Registered Rep. notes.
Finally, for a more negative outlook, there's Nobel Prize-winning economist Paul Krugman. He told BusinessWeek that there's a significant chance that the U.S. will slip back into recession in 2010 as the stimulus unwinds. “It is not a low probability event, 30 to 40 percent chance,” Krugman said. “The chance that we will have growth slowing enough that unemployment ticks up again I would say is better than even,” he added. Mortgage rates may well rise as the government’s rescue and stimulus plans wind down, he said, leading to declines in home sales and home prices.
John Reese is founder and CEO of Validea.com, a premium investment research site, and Validea Capital Management, a separate account advisory firm. He is author of the new investing book, "The Guru Investor: How to Beat the Market Using History's Best Investment Strategies".
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