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>Introducing our 2010 Market Outlook (CITI)
CORPORATE SECURITIES STRATEGY
Tuesday Tidings
Tuesday Tidings
■ Establishing a year-end 2010 S&P 500 target of 1,100. The forecasts for the equity market reflects both the 50%-like recovery from the lows of 2009 thus far as well as several indicators that are used to calibrate a year-end objective, incorporating sentiment, earnings, valuation, credit trends and historical post-recession returns. Gains are likely in 2010 but are expected to be uneven and could spike above 1,100 during earlier parts of the year and then back off. Note that our 2010 Dow Jones Industrial Average target, which is derived from our S&P 500 analytics, is 10,400.
■ The beginning of 2010 could be relatively constructive for equities. Markets should benefit from a backdrop of earnings recovery first determined by the moderation of inventory de-stocking leading to some inventory re-stocking, a better (though still subdued) employment environment, and the consumption benefits of some restored wealth via higher financial markets. All of these dynamics should bolster equities initially, especially if money flows begin to chase returns as has often been the case in the past.
■ Mid-year weakness seems probable given likely softening of economic trends. A confluence of factors could take down markets heading into mid-2010 including the realization of higher federal income taxes in 2011 (given expiration of the Bush tax cuts), increased state and local taxes in 2010 (due to budget pressures), Fed exit strategies which may affect P/E multiples, and normalization of growth to a lower level than existed coming out of prior recessions.
■ Sector shifts may be required as the year progresses. A focus on value stocks and industrially-sensitive groups including Capital Goods, Materials and Energy as well as select areas within the Financials and Technology sectors still seems appropriate for now but there does appear to be clear signs for significant portfolio repositioning during the coming year as economic conditions shift. Risk appetite could moderate and even turn adverse which would affect a host of preferences for capitalization size, balance sheet strength and dividends.
■ The “Trading Places” thesis, first initiated in 2001, remains intact. Our trading markets view is not altered but rather reinforced by intermediate term economic uncertainties which are further confused by possible domestic legislative actions that may alter the economic forecast. Growing fiscal imbalances and debt remain looming issues as do the stimulus programs globally including China given its impact on commodity prices. And, one cannot forget about pension funding issues that have not gone away either.
To see full report: MARKET OUTLOOK 2010
■ The beginning of 2010 could be relatively constructive for equities. Markets should benefit from a backdrop of earnings recovery first determined by the moderation of inventory de-stocking leading to some inventory re-stocking, a better (though still subdued) employment environment, and the consumption benefits of some restored wealth via higher financial markets. All of these dynamics should bolster equities initially, especially if money flows begin to chase returns as has often been the case in the past.
■ Mid-year weakness seems probable given likely softening of economic trends. A confluence of factors could take down markets heading into mid-2010 including the realization of higher federal income taxes in 2011 (given expiration of the Bush tax cuts), increased state and local taxes in 2010 (due to budget pressures), Fed exit strategies which may affect P/E multiples, and normalization of growth to a lower level than existed coming out of prior recessions.
■ Sector shifts may be required as the year progresses. A focus on value stocks and industrially-sensitive groups including Capital Goods, Materials and Energy as well as select areas within the Financials and Technology sectors still seems appropriate for now but there does appear to be clear signs for significant portfolio repositioning during the coming year as economic conditions shift. Risk appetite could moderate and even turn adverse which would affect a host of preferences for capitalization size, balance sheet strength and dividends.
■ The “Trading Places” thesis, first initiated in 2001, remains intact. Our trading markets view is not altered but rather reinforced by intermediate term economic uncertainties which are further confused by possible domestic legislative actions that may alter the economic forecast. Growing fiscal imbalances and debt remain looming issues as do the stimulus programs globally including China given its impact on commodity prices. And, one cannot forget about pension funding issues that have not gone away either.
To see full report: MARKET OUTLOOK 2010
