Short-Term Opportunities, Long-Term Questions

After the huge rally in stocks over the past six months, the big question for investors is, can it continue? Fortune recently posed that question to several successful strategists, and got some encouraging answers — at least regarding the short term. After that, the waters may get choppy.

“Despite some big worries about 2010, most expect the combination of market momentum and government stimulus spending to carry stocks higher for the rest of this year,” wrote Scott Cendrowski. Here’s a sampling of what these top strategists said:

Laszlo Birinyi, founder of Birinyi Associates: Birinyi — who warned clients about bank stocks back in the fall of 2007 — calls this market the “Usain Bolt of markets”, referring to the record-setting Jamaican sprinter. The S&P 500 has gained an average of 0.31% per day since its March low, he notes, which is almost three times the previous fastest recovery back in 1982 (0.12% per day). And Birinyi says the rally still has legs, in part because few, if any, investors are calling this a bull market. That kind of negative sentiment bodes well, he says, and he advises buying S&P 500 SPDRs, writes Cendrowski.

Steve Leuthold, chairman of The Leuthold Group: Leuthold, a well-known longtime bear who turned bullish only recently, sees the S&P climbing to 1,200-1,250 by the end of 2009. He thinks valuations are now fair, but expects the market to rise even more because valuations typically overshoot fair value in a recovery.

Jeremy Grantham, chairman of GMO: Similarly, Grantham sees fair value for the S&P 500 around 880, but he thinks stocks can continue to rise for the next two or three months on the backs of the stimulus and bailout plans. He thinks the S&P could reach 1,130 by year-end, but also says the market could later fall to below March 9 levels and then resume tepid growth, Cendrowski reports. Grantham is focused on U.S. blue chips for the coming years.

Bob Doll, global chief investment officer of equities, BlackRock: Doll says we could see a 10% decline before the end of the year, which would be a buying opportunity. Doll, who in January predicted that low interest rates and stimulus spending would push the S&P to 1,000-1,050 by the end of 2009, recommends “high-quality” stocks (those with strong franchises and solid balance sheets) in the health care, energy, and technology sectors, Cendrowski says.

Robert Shiller, Yale economist: Shiller says the market is now overpriced based on his 10-year price/earnings ratio calculation. Bad bank balance sheets, and the fact that the stimulus is propping up bad businesses, also are problems, he adds. “The stock market is not looking so enticing right now,” Shiller says. “It’s already a little pricey, so the expected return is probably not the historical average.”

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