Recovery on track, but risks remain
NEW YORK – Dec. 14, 2009 – Even though the Standard & Poor’s 500-stock index is on track for its first-ever loss for a decade, it is ending the year on an upbeat note, having rebounded more than 60 percent after the worst stock downturn since the Great Depression.
Now, investors are turning their attention to the first year of the 2010s wondering if stocks can continue their bull run.
Despite the big rally, there is still trepidation among investors, as questions remain about whether the stock market and the economy are truly on a sustainable path to recovery. Two burst bubbles in the past 10 years – the tech-stock bust earlier this decade and the more recent popping of the real estate and credit bubble – have shaken the faith of many investors.
To get a sense of where financial markets may be headed, USA TODAY held its 14th annual Investment Roundtable earlier this month, which was attended by top mutual fund managers and investment strategists, including a well-known Wall Street bear.
The general consensus of the five panelists is that the recession is over and that a recovery in markets and economies around the world is underway but that risks remain. The most upbeat about the outlook for stocks in 2010 was David Bianco, head of U.S. equity strategy at Bank of America Merrill Lynch. He forecasts a 15 percent gain for the broad market on the belief that global economic growth will boost the profitability of big U.S. companies that do a lot of business overseas.
David Tice, chief portfolio strategist for bear markets at Federated Investors, did not share that upbeat view. Tice, who believes stocks are still in a secular, or long-term, bear market, is calling for a drop of 40 percent for stocks. “It is time for individual investors to store their nuts,” says Tice, whose ultra-bearish views are not shared by Federated’s chief investment officer, who projects gains of almost 20 percent. (Last year, Federated bought Tice’s Prudent Bear funds, which profit when stocks fall.)
Unlike last year, when forecasters either chose an Armageddon scenario or a bounce-back thesis, the outlook for 2010 has far more nuances. “What we have now is a more muddled picture, but it is a nicer picture,” says Abby Joseph Cohen, senior investment strategist at Goldman Sachs. “Most people are taking the point of view that the period of maximum risk has passed, but we do have risks ahead. It is more normal, but it is not normal.”
Brian Rogers, chairman and chief investment officer at T. Rowe Price, expects investors to keep shifting money out of risk-free assets that offer virtually zero return in favor of riskier assets such as stocks: “I don’t think this is a bear market rally.”
The ride in 2010 could be bumpy, says Dan Chung, CEO and chief investment officer at Alger Funds. “The market is due for a correction,” he says. “But the correction is one that should be bought.”
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