Wednesday, January 6, 2010

2010 SMid Outlook Stock picking to outperform again

We’re entering 2010 constructive on equities, as the synchronized global GDP recovery bodes well for earnings power, while global slack argues for stable interest rates – in other words, a scenario that favors risk assets, with the case further aided by an anticipated fall in volatility. We believe the Russell 2000 could reach 690 sometime in 2010, for 17% upside from current levels (see Figure 3), with the bulk of the gains driven by Cyclicals and GDP-sensitive groups (Defensives are only about 21% of the weight of the Index).

• We believe investors should remain more heavily pro-Cyclical in 1H2010,
particularly as M&A is likely to be more prevalent compared to the low levels
seen in 2008 and the mixed activity in 2009. Thus, it favors staying focused on
smaller companies, in our view. Additionally, we believe stock picking will
enable managers to handily outperform the Russell 2000, as many did in 2009.

JPM Small to Mid Cap outlook for 2010 -

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