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2009 Economic Outlook from Jeremy Siegel

This article was written by in Investing. 9 comments.


Jeremy Siegel, author of The Future for Investors and Stocks for the Long Run believes that the economic recovery will be faster than expected this year. Siegel has been criticized in the past for being overly optimistic, but he may be right considering stocks don’t have to perform well this year to improve over 2008.

The U.S. economy will recover faster than expected. Unquestionably, the last quarter of 2008 and the first quarter of 2009 will show a significant decline in GDP. But I think the decline in those two quarters, which some are now predicting to be -7% and -5%, respectively, will be milder, and the second quarter might surprise with an uptick. This more optimistic forecast is based on low mortgage rates stabilizing the housing markets and increased lending by banks.

Equity markets will enjoy returns of 20% or higher… U.S. Treasury bond yields will rise over 3% as the economy improves.

A 20% return in the S&P 500 from December 31, 2008 to December 31, 2009 would be a welcome improvement. If this year plays out to be one of recovery in the stock market, then it would make sense to invest more in the beginning of the year to take advantage of as much as the upside as possible. My 401(k) doesn’t work this way; every two weeks, I invest roughly the same amount of money, so I’ll be dollar cost averaging as the stock market increases. For my SEP IRA, and Roth IRA if I qualify or Traditional IRA if I don’t, I’ll likely invest a lump sum in April. I may reserve a portion of that in a money market fund, so I can continue to invest periodically.

Are you planning for a recovery in the stock market this year?

Economic and Market Commentary, by Jeremy Siegel, January 2009

Updated September 16, 2009 and originally published January 15, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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Luke Landes, also known as Flexo, is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about him and follow Luke Landes on Twitter. View all articles by .

{ 9 comments… read them below or add one }

avatar klerg

I’ve sorta/kinda planned for it. I purchase $3K worth of the Vanguard 500 Index Fund last year. So I’m a happy camper if the S&P gains 20%!!!

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avatar BJ Flora

I’m expecting (hoping!) for a significant recovery in ’09. On 1/2/09 I purchased our Roth IRAs, as I do every year. One year I had to back it out due to income. If you think the recovery is coming sooner than later, there’s no reason to wait until April.

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avatar vh

Nope. Not that I’m selling out of my investments or anything rash…. But honestly, I don’t think a collapse of this magnitude will resolve itself in just a few months.

We just got a memo from our university president, flagged “high importance,” reporting that “Arizona legislative leaders released their recommendations for addressing the state’s budget deficit, including an unprecedented proposal to reduce the state investment in the Arizona university system by $243 million for the remaining few months of fiscal year 2009. [Legislators] also proposed reducing the Arizona university system budget by $388 million in fiscal year 2010. If enacted, these would be the largest higher education budget reductions in the state history….”

Suppose he’s trying to tell us something? Like maybe “reserve your space in the unemployment line now”?

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avatar thomas

I kind of hope it stays low for a little while. Selfishly, I just started investing towards the peak of bubble, so it would be nice to average out a little bit.

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avatar Eden

Well, I’m not an author or expert…but this prediction seems overly optimistic. This is the biggest financial mess of my lifetime. I can’t see it ending in such a short amount of time. I think we will have plenty more buying opportunities in the market this year. I wouldn’t be surprised if we see a nice market run after the inauguration, but I’m guessing we finish the year down again.

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avatar VC

The market will not recover much, if it does even recover, in 2009. Unemployment is continuing to rise, even companies like Pfizer, which is suppose to be “recession proof,” are laying off people. With so much unemployment it will be hard for businesses to grow because no one will be spending money. We will have to wait for President- Elect Obama’s Stimulus plan to work. But even with that, the stimulus plan is expected to take almost a year to start working since infrastructure building takes time to get initiated because of getting building permits and planning. We are clearly witnessing that right now the poor earnings of the 4th quarter have not even been priced into the market. After the s&p 500 finishes up their earnings, we might have a short rally but it will not last because monthly unemployment numbers will come out again. People are hoping the market is going to get better, which is what is causing these short term rallies, but the fact is that the fundamentals of the economy are not improving so the market will not improve.

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avatar Dan

Whether Siegel’s optimistic prediction comes true, or even if 2009 proves to be a repeat of 2008 (ouch!) my plan is the same.

I’m contributing the max bi-weekly to my 401 and 457, and afer-tax I’m investing heavily in BRSIX as leftover funds allow to try to rebalance with new money. In a couple of weeks, once BRSIX is rebalanced, I’ll dedicate that leftover money to my 2009 Roth. Once the Roth is maxed out, I dunno, I’ll figure it out from there.

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avatar kitty

“but the fact is that the fundamentals of the economy are not improving so the market will not improve.”
This is not really true. Markets look forward not backwards, and market moves usually preceed the economy turn around by several months. At some point bad news get factored into the market and earnings estimates come down. At this point even smaller-than-expected loss is a positive and stocks start going up. Are the expectations low enough now? Recent news from Citi and BAC showed otherwise. When will they be lowered enough? I’ve no idea.

Having said that, I do believe that his prediction is optimistic. But nobody really knows…

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avatar Tony

Jerry’s 2008 forecast was way off the mark claiming we would not go into a recession. Why should his 2009 forecast be correct? The only thing he has going for him is the law of averages where after a year where markets droped about 40% the likelyhood of a continued drop is not real high.

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