Few expect stock market surge to last through 2010

The stock market’s comeback in 2009 seemed unimaginable when the year began and particularly as major indexes plunged to 12-year lows in March.

The question now is how far can the market extend that run, which lifted the Standard & Poor’s 500 nearly 25 percent, into the new year?

“2009 was the year of the extreme,“ said Kent Engelke, chief economic strategist and managing director at Capitol Securities Management, a Richmond-based securities firm.

“We all thought the world as we know it would cease to exist. We were panicking,“ Engelke said. “Once we realized the world was not coming to an end, we began to rebound from those lows.“

Stocks began the dramatic turnaround in March after Citigroup Inc. and other big banks said they were making money again, and then the market climbed at a fairly steady pace as signs of an economic recovery from the Great Recession became more pronounced.

Investor fears about a potential financial-system collapse played a big role in the early year slump in stocks.

Once it was clear that wasn’t going to happen, the S&P surged 64.8 percent from its early March low, the biggest move since the Depression.

For the full year, the S&P rose 23.5 percent, its best showing since 2003.

But analysts said sustaining that momentum in 2010 likely would require a big drop in the unemployment rate and strong gains in corporate profits, along with stable borrowing costs as economic growth accelerates—a combination few analysts are forecasting.

“2010 will be the year of continuing the unexpected,“ said Engelke, who expects the Dow Jones industrials to increase by 10 percent to 12 percent by the end of the year.

“It’s hard to read the tea leaves right now,“ said Steve Marascia, director of research at Capitol Securities Management in Henrico County. “I think overall, U.S. corporations need to start hiring and making jobs for people.“

In an economy dependent on consumer spending, job growth will be key, he said.

“In 2010, the question really is, ‘Does economic growth ensue, which will be exemplified by employers hiring,‘“ Marascia said.

Bill Stone, chief investment strategist for PNC Wealth Management, said: “The easy money has been made already. You’re not going to see another 65 percent move in the next nine months.“