THE ECONOMY An economic and market framework is an essential element in determining what sectors will work in 2010. RCM's current forecast for the US is as follows:

GDP growth is projected at 3.0–3.5% over the next four quarters ending 30 September 2010. We anticipate a deceleration in the economy by late 2010 and further moderation in growth in 2011 as a decline in fiscal stimulus and rising federal, state and local taxes weighs on consumption.

INTEREST RATES are likely to remain at extraordinarily low levels reflecting modest inflationary pressures, stubbornly high unemployment and the subpar economic recovery.

CAPITAL SPENDING is likely to steadily accelerate from current deeply depressed levels reflecting robust corporate profits and rising capacity utilization.

EXPORTS should continue to be one of the strongest sectors of our economy propelled by a de-pressed dollar and strong demand from emerging markets.

SPENDING on goods and services at the federal level will grow unabated while state and local spending will remain under pressure as budget problems persist.

PROFITS will prove very robust as corporations relentlessly reduce costs and modest volume in-creases produce outsize profits. While strong profit growth is terrific, cost reduction will likely result in only moderate improvement in wage growth and hence consumption.

We believe a MARKET CORRECTION is likely in the first half of 2010 given the uninterrupted advance from the March 2009 lows. Nevertheless, we expect market appreciation in 2010 reflecting very strong earnings and continued low interest rates.

THE CONSUMER is the real key to both the economy and the market. If the growth rate of consumer spending revives in 2010 and then stabilizes in 2011, the economy should generate sufficient momentum to propel the equity market significantly higher.

WINNERS AND LOSERS In this environment, what sectors are likely to outperform?

TECHNOLOGY should be the beneficiary of fresh product cycles, a moderate pickup in capital spending and rapid growth in emerging markets. Many technology companies derive much of their earnings from international sources and should benefit from a weaker dollar. Despite this positive backdrop, most technology stocks are very reasonably valued relative to their sector growth rates. RCM believes this sector may be a winner in 2010.

INDUSTRIALS typically enjoy substantial operating leverage and should be the beneficiaries of a pickup in capital spending. Dollar weakness and strength in emerging market economies help these companies.

ENERGY AND MATERIALS stocks should provide moderately above-market rates of return next year assuming strong global demand and a stable to declining dollar.

Most FINANCIAL SERVICES stocks have had huge moves in the post–March 2009 recovery and we believe are fully valued based on 2010 earnings. However, some financials remain attractive based on potential earnings in 2011–2012. Asset managers, brokers and at least a few large banks continue to represent good value. RCM believes this sector will generate market-like returns.

HEALTHCARE is a sector that is extraordinarily difficult to analyze given uncertainty around the ultimate outcome of President Obama's legislative efforts. Millions of additional recipients of healthcare is an obvious plus but much of the financing of the program comes at the expense of the industry. Even with the adoption of a plan, additional tinkering is likely in coming years resulting in a perpetual state of uncertainty. We suspect the stocks may rally early next year as a plan is adopted. RCM likely will continue to be underweight in this sector for the near term.

CONSUMER STAPLES are likely to generate subpar earnings growth in 2010, and RCM is under-weight in this sector.