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weballeyDocument - 2010 STOCK MARKET OUTLOOK PART I...

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Past performance is no guarantee of future results. 1 A risk of loss is involved with investing in stock markets. Phone: (800) 568-5082 Copyright ©2010 Fisher Investments. All rights reserved. Email: [email protected] Confidential. For personal use only. Website: www.fisherinvestments.com 2010 S TOCK M ARKET O UTLOOK , P ART I Executive Summary The MSCI World Index gained 4.1% in Q4, 30.0% for the year, and 73.0% since the March 9 th bear market bottom. i While the stock market is well below its 2007 all-time high, 2009 was an encouraging beginning to a new bull market. We expect global stocks to gain more than average (>10%) in 2010 but probably less than the 2009 return (<30%). 2009 played out almost exactly as we foresaw. The initial rebound essentially mirrored the late bear market decline almost perfectly, fulfilling our V-shaped bounce forecast. Categories that fared worst at the end of the bear bounced back most, including Emerging Markets, Materials, Technology, and Consumer Discretionary stocks. 2009 concluded an unusual decade bookended by two big bear markets, leaving stock indexes with little to no net gain for the period. ii Some reflexively herald a “new normal” going forward—a period of sluggish economic growth and restrained stock returns. Though rare, 10- year periods of flat or negative returns historically have been followed by periods of strong returns—both in the US and globally. But rather than dwelling on unactionable long-term predictions, we forecast one year forward, and 2010 should play out like a typical second year of a bull market. As far back as we can measure (more than 100 years) US stocks have been consistently positive the second year after a huge bear decline—overwhelmingly so. (The sole exception was the second year after the 1932 bottom—the S&P 500 fell a mere 0.4% before resuming a steep upward trajectory for the next three years.) iii Surging liquidity and rebounding sentiment drove 2009’s gains. Revenue and earnings growth should instead be paramount in 2010, with sentiment a secondary feature. Top-line growth will likely stem from two main forces. First, the largest emerging economies will almost undoubtedly increase consumption as their populations move further up steep parts of the development curve. Second, business investment should rebound as companies play catch-up after skimping on capital expenditures and inventories during the last 18 months. Both forces will bolster global trade, as we’ll discuss in Appendix II. Governments may be massively bloated, but public companies are overwhelmingly lean and mean. Non-bank cash balances are at all-time highs, borrowing costs are low, and productivity is hyper- efficient following extraordinary cost-cutting actions. The net effect: huge earnings growth, especially when compared to depressed prior year results.
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