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TALK ABOUT A HARD ACT TO FOLLOW.
From the March 9 lows through the end of 2009, the stock market staged one of its strongest rallies in history. The Dow Jones Industrial Average rose nearly 60%. The Standard & Poor's 500 index did even better, gaining 65%, and the Nasdaq Composite did even better still, gaining 79%.
What can the market do for an encore?
For guidance, I decided -- as I often do -- to turn to those investment newsletters with the best market timing records in the Hulbert Financial Digest's ranking system. Specifically, I determined which newsletters were able to jump over three market timing performance hurdles -- each demanding enough in itself, but collectively particularly so:
*market timing performance ahead of a buy-and-hold on a risk-adjusted basis during the 2002-2007 bull market,
*market timing performance ahead of a buy-and-hold on a risk-adjusted basis during the 2007-2009 bear market,
*market timing performance ahead of a buy-and-hold on a risk-adjusted basis over the entire 10-year period through the end of 2009.
As fate would have it, only seven newsletters jumped over all three hurdles. One of them discontinued publication at the end of 2009, and two more are edited by the same adviser. This leaves just five in our panel of experts to consult about what 2010 has in store for the stock market.
Here are their latest views (the newsletters are listed alphabetically).
*Blue Chip Investor (Steven Check) -- Bullish. To be sure, Check is not a short-term market timer. But he does vary the amount of cash in his newsletter's model portfolio, and currently he has allocated just 0.6% to cash. Furthermore, Check maintains a market timing model based on the difference between the stock market's price/earnings ratio and the yield on triple-A rated corporate bonds. Based on the issue of his newsletter published earlier this week, that model currently rates the stock market as being "undervalued," though not "extremely undervalued" as it was one year ago.
*Bob Brinker's Marketimer (Robert Brinker) -- Bullish. In his latest issue, published earlier this week, in which he reported that his market timing model is bullish and his model portfolios are fully invested, Brinker wrote: "Our indicators suggest that a new cyclical bear market decline in excess of 20% is not likely to begin during the winter season. While it is true that cyclical bull market corrections can occur at any time, we would regard any such pullback as a health restoring event if it were to occur in the weeks ahead. Cyclical bull market corrections are usually contained with a range of five to ten percent, and are followed by significant rallies to new cyclical bull market highs."
*The Chartist & The Chartist Mutual Fund Letter (Dan Sullivan) -- Bullish. In his latest issue, written in late December, Sullivan wrote: "We're betting that the bull market will remain intact over the next year. That's our best guesstimate, but in all candor, we really don't know what the market is going to do over the next 12 months or 6 months or, for that matter, 3 months; and nobody else knows either." Until his models turn bearish, however, Sullivan's model portfolios remain fully invested.
*Fidelity Independent Adviser (Donald Dion) -- Bullish. Dion does not hazard a prediction about the stock market's trend for all of 2010, preferring instead to write that the year will test the stock market's "strength and stamina." In the meantime, however, Dion is keeping his equity-oriented model portfolios fully invested.
*Fidelity Sector Investor (James Lowell) -- Bullish. In his latest letter, published earlier this week, Lowell wrote: "I think 2010 will be another 20% gainer," though he also predicts that such a belief "will be hard to hold as we hit the troughs that 2010 has in store for us." Lowell's so-called Market Masters Portfolio is 87% invested in various Fidelity sector funds, with the remaining 13% invested in a foreign stock fund.
The bottom line? All five of our panel of experts are bullish, with an average recommended equity exposure level of 97%.
To be sure, their bullish consensus is not a guarantee that the bull market will continue. No such guarantees exist in this business, of course. Furthermore, there are other ways of slicing and dicing the data in which the message would be less bullish.
Still, at least this straw in the wind is very bullish indeed for 2010.
Mark Hulbert is founder of The Hulbert Financial Digest. He is a senior columnist for MarketWatch.
Comments? E-mail us at online.editors@barrons.com
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