Equity markets stay attractive as US rally continues into 2010

We remain constructive on the outlook for the US equity market over the next year and continue to see upside potential for the S&P 500 Index to between 1250 and 1350 by the end of 2010.

Our estimate of downside risk for the S&P 500 remains, for the time being, 950 to 1000, but that range should rise over time as the economy recovers and earnings continue to improve. With the S&P 500 currently at about 1110, the risk/reward ratio (now roughly 1.4-to-1) is not as favourable as it was earlier in the year, but there is still more upside than downside over the next year, in our view. Importantly, any meaningful correction would quickly tilt the odds in investors’ favour. At 1050, the risk/reward ratio on the S&P 500 jumps back over 3-to-1. At 1000, it is 12-to-1. We therefor...