2010 outlook: Flat is the new up

Stocks plunged in 2008 and early 2009 on fears of another depression, but the Dow, S&P 500 and Nasdaq have all roared back since March. What's in store for 2010?

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• Home prices: First drop in 7 months
• Get help - before you fall behind on your FHA mortgage
• Obama wants to limit bank size

6 double dip warning signs

The recovery from the Great Recession has likely started. But many economists are worried about falling into another downturn. Here's what has them concerned.

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NEW YORK (CNNMoney.com) -- If 2008 was the year the stock market almost died and 2009 was the year that the market miraculously sprung back to life, then what will 2010 be?

It could wind up being a boring, relatively stable year. And you know what? There's nothing wrong with that.

Some market experts think that after last year's despair and this year's glee, everyone may take a deep breath and realize that the economy is neither sinking to an abyss nor on the road to a robust recovery.

"I think the market could fall a bit or stay flat during the first half of the year since the economic outlook is still relatively weak. But I'm looking for a strengthening economy sometime in the middle of next year since interest rates should stay low," said Doug Ober, chairman and CEO of Adams Express (ADX) and Petroleum & Resources (PEO), two closed-end funds that invest mainly in U.S. stocks.

Ober said that he's hoping to take advantage of any pullback in the markets over the next few months, particularly in the technology and consumer sectors.

He said that Microsoft (MSFT, Fortune 500) and Intel (INTC, Fortune 500), for example, should benefit from the launch of Microsoft's Windows 7 operating system.

As for consumers, Ober said that because he is not expecting a substantial economic rebound, he's steering clear of retailers and investing more in staples like Coca-Cola (KO, Fortune 500), PepsiCo (PEP, Fortune 500), Procter & Gamble (PG, Fortune 500) and Unilever (UL).

John Norris, managing director of wealth management with Oakworth Capital Bank in Birmingham, Ala., agreed that investors shouldn't get too optimistic about next year.

"The economy might experience tepid growth of about 2% next year. With 2% growth, people won't be as quick to put money in the market. We've priced in a good recovery and it might not live up to its billing," Norris said.

But that doesn't mean the market or economy are going to fall apart, Norris added. It just looks like a lot of the easy money has already been made in this rally now that the S&P 500 is up nearly 64% since March.

"This year, you just had to be in the market to do well. Next year will be more difficult. At the end of the year if the S&P 500 is up about 8%, that's probably about the best we can hope for," Norris said.

Norris also said that investors have to be more discriminating in 2010 - especially when considering some of this year's hottest sectors and stocks.

The financial services sector, for example, has surged this year. Nearly all banks have bounced sharply from their depressed lows - regardless of how strong their balance sheets really are. As a result, many bank stocks are significantly more pricey than they were only a few months ago.

So a strong focus on identifying winners and losers in an individual sector, and not betting the ranch on an entire group of stocks, may be one of the keys to successful investing in 2010.

Valuations matter once again as well. The S&P 500 now trades at about 14 times 2010 earnings estimates, according to Thomson Reuters.

That's not absurdly expensive by any means. But back in early April, just as the market was beginning to rally, the S&P 500 was trading at only 11 times next year's earnings estimates.

"Everything was cheap in early 2009. Now you have to be a lot more selective," said Blake Howells, director of equity research for Becker Capital Management, an investment firm in Portland, Ore., with about $2 billion in assets. "That's true for the market as a whole."

The Buzz is going on a break: This is the last column for awhile since I will be out on leave for several weeks. But I just wanted to take this opportunity to thank all the readers who have e-mailed me and contributed to the Talkbacks throughout this year.

I appreciate all the feedback and look forward to incorporating more of your comments into the Buzz columns and videos in 2010. Happy Thanksgiving to all and I hope that everyone has a joyous holiday season.