The stock market doesn’t make New Year’s resolutions. It doesn’t promise to avoid the excesses of the past or to do better this time.
The stock market and the economy face a difficult year. With any luck we will avoid a double dip recession with a second dip following the dramatic comeback of the market in the last half of 2009 and positive growth in the economy.
What waits for stock investors in 2010?
Here are some plusses and minuses:
Negatives for the Stock Market and the Economy
Unemployment remains in double digits and will be a severe drag on the economy for all of 2010.
Stimulus money designed to spur the economy is still filtering out from Washington.
If this money does not result in job creation, it will have been wasted beyond an immediate fix for failing financial markets.
High unemployment means people don’t pay taxes, can’t afford their homes and drain social safety net resources.
Most people would rather work than collect welfare. Job creation is job #1 for 2010.
The housing market remains fragile and could turn down again.
The federal government is effectively subsidizing low mortgage rates by buying mortgage-backed securities.
When that stops (and it must stop at some point), interest rates may rise dramatically making a tough housing recovery almost impossible.
Positives for the Stock Market and the Economy
There is actually some good news for the stock market and economy in 2010.
The economy did grow in the latter part of 2009, although much of the growth came from federal stimulus dollars – and that’s what needed to happen.
Retailers emptied their shelves for the holidays, which means they will be reordering and that’s good for manufacturers.
How much the economy will grow in 2010 is debatable. The odds are that growth for the full year will be modest.
The continued weakness of the dollar makes our goods cheaper in the export market, again a good thing for the economy and jobs.
The stock market may see more modest gains in 2010 than experienced in the latter part of 2009.
It is helpful to remember that growth spurt came from record low numbers. The major indexes are still way below their highs for the previous ten years.
If the market can maintain at least modest growth through 2010, that may help the nerves of investors who fled in 2008-09.
A period of steady growth is probably sustainable.
There are many other factors to consider when looking forward at 2010, however keep the above concerns in mind when taking a long-term look at the market.
The stock market will likely react well to a year that boasts jobs creation and no nasty interest-rate surprises.
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