Charles Schwab Chief Investment Strategist Liz Ann Sonders, one of the few to accurately call the start of the recent recession, says she’s expecting some nice surprises from the economy in 2010 and remains fairly bullish. But she also thinks the market is overdue for a correction — one she would welcome.

“There are always impediments to growth coming out of every recession, but more often than not the capacity of markets, economies and individuals to reinvent themselves, and/or to adapt to new realities, is underestimated,” Sonders writes in commentary on Schwab’s web site. “I head into the new year still optimistic, but without blinders on to the many problems still ailing our economy. I think the market is overdue for a correction and, frankly, would like to see one to improve the sentiment environment (remember, it works in a contrarian fashion).”

Among Sonders’ key points:

• Strong growth in the developing world will help the U.S.: “As we obsess over the 70% of US gross domestic product (GDP) that is driven by domestic consumption, we often overlook the benefits that accrue to our economy from strong global growth (via exports in particular),” Sonders says. “The bottom line is that a growing developing world is something we should cheer, not fear. There is simply a larger base of customers for what we do best in this country, which is to innovate and create.” Because of that, one of Sonders’ main concerns is growing protectionism in Washington.
• Avoid Primacy Bias: “It’s understandable that we are prone to dwell on financial and economic crises — causing us to suffer from “primacy bias” (extrapolating present circumstances too far into the future),” says Sonders. “In doing so, we often miss some budding positives and opportunities.”
• Volatility: Sonders says volatility is likely to be high this year, and that investors should keep an ey on leading economic indicators. A peak in the LEI could signal a shift from cyclicals to more defensive sectors.
• The U.S. Is a Great Innovator: Sonders says no large country “comes even close to the United States as an incubator for entrepreneurial ideas”, and that the key source of growth for any economy is new ideas. They allow more production from the same resources.
• A Recovery — With Jobs: The drop in initial unemployment claims from their peak in 2009 is actually much stronger than either of the “jobless” 1991 or 2001 recoveries, Sonders says. In addition, earnings revisions, which are highly correlated with employment, have been very strong to the upside lately.
• Bonds vs. Stocks: The likelihood that bonds will continue to beat stocks, as they have over the past 20 years, is slim. The two periods in which that has previously happened since 1926 were followed by major stock outperformance. Low Treasury yields also argue against continue bond outperformance.
• Deficits: The biggest obstacle for the market is ballooning government debt.