The S&P 500 will end the year significantly higher than its current levels, according to James Abate, the manager of the PSigma American Growth fund.
He predicts the index will rise more than 20% over the course of this year. “We expect the US stockmarket to move sideways in the short term followed by another leg up of approximate proportion to the recent rally prior to the end of the year,” Abate says.
The stockmarket has rallied 30% since the lows of early March, with value and smaller companies performing the best. Investors have to decide whether it is simply a bounce in a bear market rally or the start of the next bull market, he adds.
Meanwhile in a speech to the joint economic committee in Washington this week, Ben Bernanke, the chairman of the Federal Reserve, said the pace of contraction in America is slowing.
Despite warning that unemployment will rise in the coming months, Bernanke said household spending will be supported by the government’s fiscal stimulus package.
“Consumer spending, which dropped sharply in the second half of last year, grew in the first quarter. In coming months, households’ spending power will be boosted by the fiscal stimulus program, and we have seen some improvement in consumer sentiment,” he said.
“Nonetheless, a number of factors are likely to continue to weigh on consumer spending, among them the weak labor market and the declines in equity and housing wealth that households have experienced over the past two years. In addition, credit conditions for consumers remain tight,” he added.
American real GDP dropped at an annual rate of over 6% in the fourth quarter of 2008 and the first quarter of 2009, Bernanke said.