Charles Schwab, the US brokerage and investment firm, says it remains optimistic about equity market performance in 2010 but expects that stock prices will not rise at anything resembling the hectic pace that has been seen since March.

“We remain relatively optimistic on the prospects for the equity markets as economic conditions continue to improve, seasonality tends to be favourable at year-end, and investor sentiment has not reached levels that indicate undue enthusiasm toward the market,” according to a note written by Liz Ann Sonders, chief investment strategist, and Brad Sorensen, director of market and sector analysis.

“However, we believe that gains will be much more muted, and likely with more volatility, than they have been since March - in fact, we've already started to see that dynamic develop, with the market moving more sideways than upward as of late,” the note said.

The sharpness of the rally in stocks since March has been undeniable. The S&P 500 index of US equities has surged by 60 per cent since early spring.

Economic and financial risks remain, Charles Schwab said, and some recent data, such as from the US-based Institute for Supply Management, shows continued contraction in the non-manufacturing side of the world’s largest economy. On the other hand, the US employment report for November showed the lowest number of job losses – of -11,000 – since 2007.

Charles Schwab said its largest concern is how the massive amounts of money injected into the US economy will be unwound.

“We remain in the minority who believes rate hikes could begin before mid-year 2010. Remember, the 0 per cent -0.25 per cent Fed-Funds-rate range was put into place during a financial emergency,” it added.

The firm said it expects emerging market markets to continue outperforming in 2010, as economic growth will translate into higher corporate profit growth.