TD Waterhouse predicted Monday that the U.S. economy will avoid a recession next year, and said returns on Canadian and U.S. equity markets should be in the single digits for 2008.
Bob Gorman, the chief portfolio strategist at the discount brokerage, said the biggest question currently facing investors is whether the five-year-old global bull market will continue next year, or whether the subprime lending crisis will tip the U.S. into recession and cause a bear market.
"But there has been so much coverage of the subprime crisis that we believe it's already embedded in current market prices," Gorman said.
"Therefore, other strong fundamentals, when combined with the stimulative effect on markets of the presidential cycle, will outweigh the subprime impact and keep the economy out of recession territory," he said.
Weakness in the U.S. dollar has boosted exports, and is expected to offset the economic fallout from the sagging housing market caused by the subprime mortgage sector, the brokerage said.
U.S. stock markets are forecast to produce high single-digit returns next year, TD Waterhouse said, adding that large-cap growth stocks should be the main beneficiaries after several years out of favour.
For Canadian equities, TD Waterhouse also predicted a sixth year of growth. The firm sees less emphasis on commodity prices and more on less-cyclical stocks such as the major insurance companies.
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