On Track for Recovery

Personal Finance Weekly (09/19/2009)
"September is the weakest month of the year for the market, but the S&P 500 continues to ignore that well-worn seasonal pattern, steadily marching to new highs.

I've remained bullish in recent months and continue to look for the S&P 500 to trade to 1,200 by year's end. But I've also been among those looking for at least a short, shallow pullback this month after a nearly unprecedented rally off the March lows.

Such a 5% to 10% pullback remains possible in coming weeks, though it's increasingly unlikely. If we do see a correction, look on it as a gift, a last-chance buying opportunity before a year-end run-up.

Institutional investors and fund managers caught underinvested for much of the summer rally continue to jump on every short-term dip in the averages, chasing performance and fearing they're going to miss out on the move.

Meanwhile, I continue to be amazed at just how bearish the retail mood is right now. Few individual investors I speak to have any conviction in the rally over the past six months or in the potential for even a cyclical recovery in the U.S. economy. It's tough to imagine a major top in the market with the mood still so downbeat.

Undoubtedly, the U.S., alongside many other developed economies, faces a number of important headwinds in coming years. I've written extensively about these challenges in recent issues of PFW; the list includes massive government borrowing that will ultimately mean higher interest rates and a still-sluggish U.S. consumer focused on paying down debt.

These factors will ultimately mean the coming economic recovery will be shorter and less impressive than those of recent memory."

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