Wells Capital Management chief investment strategist Jim Paulsen believes there's a case to be made for the S&P 500 to reach 1350 in 2010.
He says to consider the "rule of 20," which says that price-earnings multiples should be equal to 20, minus the current annual consumer price inflation rate. The S&P can get to those levels if you assume a 3 percent consumer inflation rate for 2010, and a 17 PE ratio.
Paulsen says a big challenge for markets in the coming year will be gaming when the Fed will revise its extreme low rate policy. "The conversation is starting to get beyond the double dip. The question now is how fast will the Fed step in," he said in a recent interview.
Paulsen believes the Fed will alter its posture once job creation begins, and that could be as early as the first quarter. But he does not believe a tightening Fed is a bad thing for stocks, at least initially. "When the Fed tightens, things are back to normal," he said.