There's a lot of uncertainty among investors following the once-in-a-generation rally in the S&P 500 SPX-I and the S&P/TSX TSX-I from their panic lows set at the height of the financial crisis. What comes next?
The bears point to the extensive amount of damage that has been done to the balance sheet of the U.S. government and the U.S. dollar, not to mention the loss of wealth by the average consumer as a result of the housing debacle. There's a price to be paid, they say. And that could be rampant inflation and higher taxes.
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Market Outlook 2010:
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Bulls, on the other hand, will take confidence that a recovery is under way in North America and that there is a seemingly insatiable demand around the world for resources and products.
As for the U.S., there is a growing pent-up demand for housing, the banks are rebuilding their balance sheets and an increase in savings by U.S. citizens is not a bad trend at all.
Here are five key bear and bull arguments. It's important for investors, whatever side they are on, to understand and weigh the merits of the arguments before plunking down their money in stocks or bonds.
Five reasons to be bullish:
1. Corporate profits of the companies on the S&P/500 over the next 12 months (fourth quarter of 2009 to the third quarter of 2010) are forecast by analysts to increase 27 per cent, according to Thomson Reuters, and given the ruthless cost-cutting, profits could even be higher. That suggests stocks are trading at a price-to earnings ratio of 14:1. The long-term average multiple is about 16.3, according to RBC Dominion Securities Inc.
