Stocks First, Economy Second

From Wesbury and Stein of First Trust Advisers:

History shows that the stock market tends to bottom before recessions end. The stock market bottomed in August 1982, and was up 26% before the recovery began in November 1982. And in 1974, the stock market bottomed in December, and was up more that 24% by the time that nasty recession ended in March 1975. We believe the current recession will end sometime early in 2009, which suggests that US stocks have probably already bottomed. ...  While many are suggesting that “this time it is different,” and certainly this past year has witnessed unprecedented events, the market is dirt cheap. And even though our mothers told us that we wouldn’t touch a hot stove twice, we will brave another stock market forecast for 2009. We expect a 30% increase in the Dow during 2009, taking it back to 11,000 by year-end, and then another 25% gain in 2010. Most amazing of all is that the market will still be undervalued, even if these large gains in the next two years occur, suggesting that above average returns will be the norm for the next few years.