December 20, 2009
S&P 500 has recorded one of the most powerful stock rallies ever since 3/9/09:
§ 676.5: S&P low recorded on March 9, 2009
§ 1102.47: S&P price as of December 18, 2009
§ 62.9%: S&P 500 return since March 9, 2009 low which is one of the most powerful rallies on record
§ 22%: YTD S&P 500 stock market return
Other trends according to Barron’s:
§ 15 million job seekers
§ 5 million vacant apartments
§ Economy running at 71% capacity, versus a four-decade average of 81%, will hold wages and prices down.
§ GDP declined 6.4% in 1Q09 but increased 2.8% in 3Q09 – a 9.2% swing
§ Anticipated 2009 S&P 500 Operating Earnings: $61.33
§ Forecasted 2009 S&P 500 EPS = $76 (24% increase)
Where do we go from here?
Investment professionals have varied views:
§ According to Barron’s, “forecasts for gross-domestic-product growth lie between 2.3% and 4%, well below the average 6% rate of economic expansion historically seen in the year following a recession.”
§ 20% return: some investment professional forecast a target for the S.& P. 500 in the range of 1300 to 1350 by the end of 2010, or about 20 percent from Friday’s close
§ 10% decline: many investment professionals predict a short term market decline of more than 10 percent
§ 25% decline: some predict a decline in the range of 20 or 25 percent
§ Up and then down Market: S&P 500 increasing to 1300 before it slides to 1250
§ Interest Rates increase: many believe that the central banks, fearing inflation will raise rates in the Spring of 2010, which will negatively impact stocks
§ Avoid Treasuries: since interests will rise, bond prices will fall. Thus, many forecasters are avoiding the Treasury market
§ Market leaders: consumer staples, health care, technology and industrial shares should take leadership (from financial stocks) in 2010
§ Stock Picker’s Market in 2010: big gains won’t be seen in ETFs and Mutual funds as many investors are leveraging these as opposed to individual stocks. Industry leaders should do well: Apple, Goldman, Oshkosh, Green Mountain
§ International Markets Lead the Way in 2010: foreign markets valuations are much lower than the US
§ Treasury yields are poised to climb higher in 2010, with the median forecast calling for the 10-year note to touch 4.125%.
§ Contrarian View: The pessimistic case is an easier one to digest as it’s focused on our current situation. However, the market looks forward.
The Bottom Line(s):
§ Dollar-cost average into State Street Global Advisors’ S&P500 (SPY)
§ Protect against the downside with S&P Index ETF with options (SH)
§ “Double Short” the market with a leveraged Index ETF (SDS)
§ Avoid Treasuries
§ Short Treasures (TBF)
§ Invest in market leaders such as Apple
§ Invest in foreign markets ETF (ishares = EFA) or mutual fund (Vanguard’s VGTSX)
Source(s): NYT, Birinyi Associates, ETF Trend Playing Handbook, Barron’s.com, Google.com
