Markets continue to show signs of skittishness about future prospects, but my near-term outlook remains positive. I expect the US economy to surprise to the upside and generate good news, pushing global markets higher.

That being said, the current weakness isn’t a surprise, as the big gains of 2009 have discounted some of the recovery in the global economy.  I expect markets will be choppier in 2010 and tougher to trade. Nevertheless, emerging markets should outperform their developed counterparts once again, especially in the first half of the year.

Stock-picking acumen will be paramount in 2010, as earnings growth and upward revisions will drive stock prices.

On the macro level, we need to revisit the question of whether a strong dollar bodes ill for markets. The logic of weak dollar, strong markets is seemingly engrained in most investors’ minds.

Eight years ago, when I first commented on the US dollar’s structural decline, my outlook attracted a great deal of venom from subscribers. Today such an article would hardly raise an eyebrow.

But the near-term outlook is more complicated, as I noted in Don’t Scorn the Dollar on Nov. 12, 2009:

…assessing the dollar’s short-term prospects today is a far more fraught proposition; almost everyone you talk to these days has a theory about the dollar’s woes, many of which are invalidated when something unexpected happens…investors should expect a strong rally in the dollar and, accordingly, a correction in gold prices and the euro. As a weaker dollar has traditionally been a positive for Asian equities, those markets could also suffer a slight correction.

Subsequently, the US dollar has rallied 6 percent against the euro, putting investors on edge. But this anxiety is a short term issue; the dollar is merely responding to marginally better economic news.

Note that the last time the US dollar strengthened was at the height of the financial crisis, when many investors flocked to the currency’s perceived safety.

But even during times of relative stability, the exchange level of the dollar should have little bearing macro developments or the asset allocation process. For now, investors should regard the US dollar’s strength as a counter-rally in a well-established downtrend.