Bank of America-Merrill Lynch analysts predict stocks will rise about 15 percent next year amid low interest rates and improved economic growth.
"We believe that equity investors will come to acknowledge that the low interest rate environment is likely to persist in 2010,” they wrote in a report for clients. That will lead to an improvement in earnings.
And next year, the profit gains will come from companies increasing their sales rather than just cutting stocks.
“This will cause stocks to climb higher,” the analysts say. They see the Standard & Poor’s 500 Index reaching 1,275 next year.
The analysts anticipate strong economic growth in emerging markets and a slow, steady recovery in the U.S. As a result, “We think we will exit this pessimism bubble in 2010."
Industrials, energy and utility shares will lead the market higher, the analysts predict.
They are less enthusiastic about the consumer staples, consumer discretionary and technology sectors.
Meanwhile, Milton Ezrati, market strategist at money manager Lord Abbett, estimates that stocks will rise 20 percent next year.
“We have a lot of support still from the Fed, with a lot of liquidity,” he told CNBC.
“We have the economy turning around. The earnings look reasonably good for 2010, even with a sluggish recovery.”
Stock investors are confident that the Federal Reserve can reverse monetary stimulus soon enough to prevent an inflation outbreak, Ezrati says.
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