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MFS strategist sees 6 pct rise in S&P on recovery

Published 06/03/2009, 01:56 PM
Updated 06/03/2009, 02:00 PM

* Expects strong corporate earnings

* Recession will not end until November

BOSTON, June 3 (Reuters) - The Standard & Poor's 500 Index <.SPX> will likely rise 6 percent this year on stronger-than-expected corporate earnings, forecast James Swanson, chief investment strategist at mutual fund firm MFS Investment Management.

Speaking on a conference call with reporters on Wednesday, Swanson said he doesn't expect the current recession to end until November. Unemployment will likely top 10 percent, among the worst rates since the Great Depression of the 1930s.

But stock markets tend to rally ahead of the economy, Swanson said, adding he expects healthy profits for larger companies to drive up shares by year's end.

There could still be bumps, however, and Swanson cautioned that what he called "a sustained bull market" will not begin until later this summer.

Swanson's comments were in line with other forecasts as investors try to predict the onset and pace of an economic recovery and how it might affect securities. For instance, almost three-fourths of economists surveyed by the National Association for Business Economics in its May 2009 Outlook report predicted the recession will end by the third quarter of 2009, and more than half expect U.S. economic growth of 2 to 2.5 percent over the next five years.

Swanson also said high-grade bonds appear to be cheap by historic standards and he called Treasury Inflation Protected Securities, or TIPS, "affordable." However, Swanson said he does not expect inflation to drive significant increases in the Consumer Price Index for a year.

"We have too much slack in the system," he said, referring to idled factories and unemployed workers.

Swanson added he expects home prices to stabilize by August, and that affordable housing still will help drive a U.S. recovery in which growth averages around 2 percent. China and other emerging markets will be next to recover, followed by Europe and then Japan, he predicted. (Reporting by Ross Kerber and Erin Kutz in Boston; Editing by Richard Chang)

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