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Expect a 'Square Root-Shaped' Recovery: Chief Investor

U.S. stocks climbed on Monday as the dollar pulled back and a report showed a sharp jump in existing-home sales. Will the rally likely continue throughout the week? John Merrill, founder and chief investment officer of Tanglewood Wealth Management, and Burt White, chief investment officer  of LPL Financial, shared their market outlooks.

Market Edge

“We see a square root-shaped recovery in the U.S.," Merrill told CNBC.

"We’re going to have some strong growth through the middle of next year and then it’s going to flatten out, because of the weak consumer businesses reluctant to invest, because of idle capacity, and mainly because governments are constrained at the local, state and federal level.”

“But we still think a modest U.S. growth is sufficient to maintain this cyclical bull market because of growth in the rest of the world.”

Merrill said a lot of the larger companies in the U.S. are benefiting from the growth in emerging markets and have learned to churn profits through cost cutting.

“And then we have the really low interest rates and a very strong bond market, which means that many of our corporations are refinancing themselves very attractively,” he added.

Emerging markets are doing the best and natural resources stocks that play into the emerging markets are doing well,” Merrill said. “Technology’s been our best sector year to date and happens to be the one sector that’s not only had profit growth, but also had revenues grow.”

In the meantime, White said the forecasted 2 percent GDP in 2010 is too low.

“Seven to 9 percent is typical following a recession in the first year of a recovery,” he said.

“But it’s going to be diminished—maybe 3 or 4 percent—but that can still clearly sustain a much higher price level for stocks here.”

White expects foreign countries to keep buying U.S. Treasurys to ensure that U.S. consumers will continue to buy foreign goods.

“At the end of the day, if they don’t step up to the plate and buy these [Treasurys], the consumer of the U.S.—the global spender—is going to be weaker than what they want,” he said.

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No immediate information was available for Merrill or White.