S&P Outlook, Forecasts Further Bull Ride in 2010

If you’re an investor and your time horizon is more than a few days, as opposed to a stock market trader, its time to look at 2010 forecasts. The Dec 23, 2009, S&P Outlook – 2010, Annual Forecast provides that. An historical analysis of bull markets since 1949 shows the 2nd year S&P 500 showing an average 15% increase vs. a 1st year average increase of 32%. And there hasn’t been a declining 2nd year, using data since 1949.

Further 2nd year bull market analysis, shows small caps outperforming large caps, with the margin of price leadership narrowing. And cyclicals maintain their leadership over defensive stocks. In year 2, consumer discretionary, financial and technology stocks repeat their market out performance over defensive sectors like consumer staples and healthcare, which outperform in the 3rd year.

What sectors does S&P recommend overweighting? Overweight, energy, industrials, and materials. Underweight, telecommunications and utilities. Because S&P’s economic forecast sees high unemployment of 10% in 2010 and sluggish growth, they are only forecasting a 10.5% increase over the Dec.3, 2009 closing level of the S&P 500 for 2010. That would be lower than the norm for a 2nd year bull market, but these aren’t ordinary times, as anyone who witnessed the financial meltdown knows. David Wyss, S&P’s chief economist predicts inflation below 2% until 2013, and no Fed rate increases until the fourth quarter of 2010.

S&P’s 2010 forecast provides a reassuring message to investors, especially those with rattled nerves.