Investors warned to expect “bull market episode”

In investment report recently presented by MFS Investment Management of Boston James Swanson, chief investment strategist at MFS said that the economy will stop shrinking later this year. As he thinks the current stock market rally may be a forerunner of economic recovery. Although, as he added later, this rally, which began March 9, may not be a sustainable one, but more of a “bull market episode”.

“We may be on the way to a secular bull market,” Mr. Swanson said. “But I think the sustainable bull market will begin during the summer sometime. This may not be it. It could be liquidity driving stock prices up.”

But investors should be wary, he said. “In a bull market rally, 60% of the price should be driven by the market. For a sustainable bull market, you also need to see rising volumes, and we haven’t had rising volumes with this rally.”

But still he believes economic recovery is not far off. According to Mr. Swanson, housing market should stabilize in August because of government’s efforts to keep mortgage rates low.

After recovery of US economy, the United States will lead the way to a global recovery, followed by China and the rest of the emerging markets, Mr. Swanson said. By that, he suggests investors to add international exposure to their portfolios. “China will go back to 10% growth, which means there are a lot of earnings to come out of these emerging countries,” he said. “Looking to long-term growth, Americans should increase their portfolio weight internationally.”

Other ideas that he suggests investors to consider are Treasury inflation protected securities, dividend-paying stocks and high-grade corporate bonds with five- to seven-year maturities.

According to Mr. Swanson after economic recession ending the inflation rate will not develop for a year and is expected to be 2%. As he said, the cheapest stocks are international, large-cap companies with low debt and high-credit ratings.