The Australian sharemarket is within a whisker of hitting a fresh 2009 record as the year draws to an end, after a mighty rally that has lifted stock prices 56 per cent from their March lows.
Yesterday the S&P/ASX 200 Index closed at 4833.3 points after a 0.2 per cent fall broke a four-day winning streak, but the index remains just below the year's high of 4895.3, reached in October.
It has risen 32 per cent in the past year, the strongest annual rise in 16 years.
And while the rally has provided a welcome boost to consumer confidence, not to mention ailing super balances, investors face one big question: can shares continue their gains in 2010?
Bob Van Munster, head of equities at Tyndall, said share prices were already factoring in earnings of 16 times companies' one-year forecasts, compared with the average historical ratio of about 14.
''The market's expecting an earnings rebound, and we need to see signs of that coming through before the market gets much stronger,'' he said.
The first six months of 2010 would be a tough environment for company earnings, Mr Van Munster said, and analysts were expecting improvements soon after June and a 30 per cent lift in profitability between now and June 2011.
CommSec's chief equities economist, Craig James, was more bullish, tipping the All Ordinaries would rise 15 per cent to 5600 points next year, thanks to falling unemployment and stronger growth.
For this to occur, however, analysts said the private sector would have to stand on its own feet again after benefiting from extensive government support in the financial crisis.
The head of investment markets research at Colonial First State, Stephen Halmarick, said he expected share prices to keep rising but with more volatility than in 2009.
After generous government hand-outs supported consumer spending, corporate Australia now faced rising interest rates and lower disposable income.
''Now the onus for the economy and for company profits will be to achieve what the market's got priced in,'' Mr Halmarick said.
''The Government and the RBA will be looking for private sector consumption and investment to be the major source of growth.''
Moreover, some sectors of the market are likely to benefit more than others from a recovering economy.
This year bank shares posted the strongest rise, and miners followed close behind thanks to an 80 per cent lift in commodity prices.
In 2010, the big winners from stronger domestic growth could be cyclical stocks with heavy exposure to the state of the economy, such as building materials and media.
