The U.S. gross domestic product is expected to grow by 3.5% in 2010 and 3.1% in 2011, according to projections in the Barclays Capital Global Outlook research report.
The report projects a sharp rally for equities in the first quarter, with corrective behavior in the second and third quarters of 2010.
“In the immediate term, we are biased to staying long in equities,” according to the report. “Our suggested mix of sectors remains industrials, technology, basic materials and energy, but we would recommend shifting into more defensive areas as the quarter progresses.”
Investors should keep recovery trades in place in the first quarter while staying alert for changes in the current liquidity-driven environment, according to the report.
The continued economic growth in developed countries combined with low interest rates should sustain markets in the short term, but above-consensus U.S. economic growth in the first quarter could trigger concerns over policy tightening.
“While global economic growth will continue in 2010, the uniformly favorable environment for asset prices is likely to change in the first half of the year,” Larry Kantor, head of research at Barclays Capital, said in a news release. “The pervasive impact of cyclical swings on markets is likely to give way to issues such as the exit strategies to be taken by central banks and regulatory responses to the financial crisis. Signs that policy tightening is imminent would suggest that investors should reduce risk and diversify their positions.”
Mr. Kantor could not be reached for comment.