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.