Heading into 2010, I believe there are a few things to keep an eye on. We’re still early in the economic recovery, so I expect an upside bias to the stock market. But history shows that mid-term election years tend to see a market correction followed by a big rally. Wage growth will still be tough. I think state and local governments will be surprised on the upside by 2009 tax returns come the April filing, and that will relieve some of their deficit issues. But states are still dealing with high unemployment. I expect unemployment to creep down as companies begin to hire folks in anticipation of steadier growth ahead.
I think the economic recover will be slow but steady. So I’m looking for a return in the SP500 of about 10%. Not going out far on the limb.
As for my portfolio, I remain 100% long but will watch closely for the mid-term correction to lighten up in anticipation of more attractive prices and a rally into year-end.