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4 Reasons Why You Need To Prepare For A Possible Stock Market Correction

 March 29, 2012 12:41 PM

If you're being kept awake by a neighbor's party, you may as well get dressed and join the fun. That was the possible reaction to Wall Street strategists, who issued fairly dour "year-ahead" reports back in December, predicting the market would soon stall out. In hindsight, they were flat wrong, with the S&P 500 now handily above even the most bullish price targets.

Well, analysts at Credit Suisse threw in the towel in mid-March, boosting their target for the S&P 500 to 1,470. That's about 4% above current levels. The key change in their thinking: "We still expect (U.S.) GDP growth to slow ... but the risk now is that it slows less than we expected." And they think that stocks remain fairly inexpensive, even after the recent surge, adding that stock gains are likely to come at the expense of bonds, which are likely to lose value as bond yields rise.

Analysts at Goldman Sachs had been quite bearish until recently. Back in February, I noted that they thought the S&P 500 was likely to slump back to 1,250 in the face of tepid global growth in the United States and a recession in Europe. They also suggested the index would plunge to 900 if the European mess led to a global recession in coming quarters.

Now they are singing a very different tune. In a much-discussed report issued on March 21, Goldman's analysts are suggesting we're entering an era of the "long, good buy" for stocks (and as Credit Suisse suggests, a commensurate move out of bonds). (Our own Adam Fischbaum recently suggested that readers begin to rotate out of bonds right now before the herd catches on.)

Goldman's core belief is that the risk premium associated with stocks is now quickly diminishing.

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