The US stock markets have reached a bottom and the short-term rally will continue as credit shows signs of easing up and investors get back into the market.

That is according to LOM's Economic Forecast drawn up by its Investment Policy Committee this month, which has recommended adding one percent to equity investments, two percent to cash and lowering bond allocations by three percent.

The Committee said it had seen a big rally in the US dollar since its last meeting in mid-September, moving from $1.44/euro to $1.29/euro and hitting a two-year high and it expects the dollar to continue to strengthen, at least in the short term.

The investment firm has increased its target allocation for the dollar to 61 percent from 57 percent and dropped its Euro target allocation from 20 percent to 17 percent and its dollar bloc allocation from six percent to five percent to offset this trade.

It also believes that the government bond market could have a material price correction soon as money is moved into riskier assets such as equities and has subsequently decreased its bond allocation by three percent using the proceeds to invest one percent more in equities and two percent more in cash.