Understanding this is a balance sheet recession, I have never thought the consumer would be the opportunity focal point. Rather, corporations were best positioned for the impending Armageddon and are best positioned to contribute to a modest recovery. Just look at the ISM, which is above the 50 contraction point at 53, thank you XYZ Inc. However, Consumer Confidence is a paltry 66 - Jane and John Doe just aren't feeling it.
3rd and 4th quarter GDP should both be robust, growing close to 3% each quarter. BRIC nation GDP in 2010 will make its return back above 8% with China back in double digits. This year BRIC nation GDP struggles around 5% while China swings around 9%.
Valuations for 2010 range, but the projections I agree with the most suggest a 2010 EPS around $74. That means we are trading at about 13.5x the 2010 projection. Whatever the 2010 EPS number, I am rather confident that the Energy sector contributes the most to the overall figure. So, yes, we have plenty of upside from here. In fact, a settlement above 1050 in the S&P 500 by 12/31/09 appears highly likely.
Talking cash on the sidelines, Goldman Sachs reports that Money Market mutual fund assets total $3.6 trillion, 41% of the S&P 500 market cap! Pension and retirement funds remain modestly underweight equities.
Unemployment remains a challenge; the rate will continue to rise throughout the next 6 to 9 months, the question is how far above 10% does it get?
What are corporations doing with their cash? According to Compustat, Goldman Sachs Global ECS Research, cash invested for Growth will reach 73% this year. That is back to the levels of the late 1990s. That should calm some of the concerns that there will be no top line growth in 2010.
Here is an interesting thought/debate game - We all understand the past decade was the lost decade. So, for the year 2020, write down today your S&P 500 print. My projection, we are talking 2000 in the S&P 500 as 2020 approaches.