As the Christmas trees hit the curb, the credit-credit card bills started rolling in -- and they most likely haven't been pretty. Whatever the case; don't ignore them.  

People all over the country are choosing to move their money out of bigger banks and into smaller, community-oriented financial institutions that generally avoided the reckless investments and schemes that helped cause the financial crisis.

Are your pledges the kind that require continued willpower (like saving more)? Taking these steps can make all the difference.

With the volatile market activity that we have seen over the last 3 years, here is what the LPL Financial research team is predicting for 2010.

During 2009, the economy began its recovery. Economists often talk about different letters to describe the shape of the recovery: is it a “V”-shaped or very rapid recovery, or a slower-paced “U”, or an “L”, meaning no recovery. We see the potential for a lopsided “W”-shaped pattern. The economy has experienced the sharp decline and rapid recovery of the first half of the “W,” but there is the risk of another smaller decline in growth in 2010 as the stimulus fades and the tailwinds turn to headwinds. Based on the path we believe the economy and markets will follow in 2010, we forecast the following:

1. We see economic growth in the 3 – 4% range for the full year 2010, with stronger 3 – 5% growth in the first half and slower 2 – 3% growth in the second half.
2. Job losses end in the first half of 2010. The transition from recovery to sustainable growth allows the Federal Reserve (the Fed) to begin to raise rates in the second half of the year, slowing the pace of economic growth.
3. The Fed is expected to begin to hike interest rates in the second half of 2010 and end their purchase program totaling $1.25 trillion in Mortgage-Backed Securities (MBS) debt that has been lending support to the credit markets throughout 2009. The spending fueled by the $787 billion economic stimulus package that was passed in February 2009 will begin to fade by the middle of the year.
4. We see stocks posting gains early in the year that are later cut in half to end the year with only modest single-digit gains. With stocks up 60% from the March 9, 2009 low (as measured by the S&P 500), the big market gains are likely behind us as the economy and markets face some new challenges in 2010.
5. Earnings growth is projected to rise 25% in 2010 (about $76 vs. $60 in 2009). Profit growth will begin to slow in the second half of 2010, one year after it began to rebound, as the economy faces the prospects of tougher comparables and an unwinding of the stimulus-inspired growth.
6. The bond market posts flat to mid-single-digit gains in 2010. Credit conditions may begin to worsen late in the year as the outlook for profit and economic growth begins to weaken and the Fed’s MBS purchases (which contributed to narrower spreads across the bond market) fade.

Entering 2010, we recommend overweighting stocks particularly Cyclical sectors, U.S. multinational companies, and Emerging Markets. We also favor the economically sensitive Commodities asset class. In the bond market, we prefer High-Yield Corporate and Emerging Market Bonds.

As the year continues, becoming defensive will likely again become appropriate, resulting in a portfolio strategy that underweight's stock and cyclical investments and a transition to investments, such as Covered Calls, Global Macro, and Balanced strategies. Again in 2010, a tactical approach to investing will be important to maintaining the path to long-term investment success.

While I do believe that they are correct in their predictions, remember that they are only predictions and anything can happen! With this being the beginning of the year, it is a great time to review all of your accounts to ensure that you are invested appropriately. If you would like to see the full research report or if you have any questions, please contact me.

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