JP Morgan continues to like the risk trade. They see the economic recovery continuing into 2010 and forecast that many of the trends that have driven equity markets higher in 2009 will continue into 2010. They see a very strong outlook for corporate earnings and margin growth as the primary driver of equity prices. In fact, they see profit margins expanding to their recent record highs:
“Equity markets should rise again next year driven by strong earnings growth. Our $80 S&P 500 EPS forecast for 2010 is 27% higher than this year’s $63, implying a much faster rise in earnings than nominal GDP, i.e., an expansion
in profit margins. Our forecast suggests that by the end of next year, US profit margins are likely to approach the historic highs reached earlier this decade.”
The primary beneficiaries of this continued growth in the risk trade will be emerging markets. JP Morgan is the most bullish bank I’ve seen on the street so far this year and forecast a very bold 30% increase in emerging market share prices in 2010:
“EM equities should continue to outperform next year due to stronger growth and inflows. Our 2010 year-end forecast for MSCI EM is 1,300, an upside of 30% from current levels versus an expected 15% return for developed market equities.”
JP Morgan now says the world economy is reaching “cruising speed” and should grow at a healthy 3.5% clip in 2010. Credit markets should remain healthy and fixed income markets will slowly experience an upward drift in yield. This will keep trends in the forex market largely intact. All in all, look for a lot more of the same in 2010….
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.