Usually after a downturn, market performance rebounded then fell flat for an extended period, she said.
The rebound through to April was unusually strong, driven by massive fiscal stimulus which was now being withdrawn.
"This suggests we may now see markets move more broadly sideways with increased volatility for some time."
Earnings forecasts were revised up rapidly last year in most developed markets - too rapidly, in Ms Kinnaird's view.
Investors were now unlikely to see growth for a while.
Nevertheless, there had been little upgrading in New Zealand, which suggested the New Zealand market could outperform some of the larger global markets through the second half of this year, she said.
"We believe our market targets from the start of 2010 - based on mid-cycle or trend earnings - are still reasonable, although it may take a year longer than anticipated to get to them."
That would imply a two-year gross return target of more than 35%, although the next six months might not contribute much, she said.
In the view of the slower recovery, which was looking increasingly likely, Forsyth Barr had stress-tested valuation-based and PE-based targets to identify stocks which should still perform well in the event of 10% downgrades to valuations of 2011 and 2012 earnings.
Stocks likely to outperform on that basis were AMP NZ Office Trust, The Warehouse and Telecom. Telecom was subject to some uncertainty around the Government's ultra-fast broadband project, Ms Kinnaird said.
Of the smaller companies, Delegat's, Fisher & Paykel Appliances and Rakon were expected to outperform.
Other stocks that could come out positively on two of Forsyth Barr's three measures were Air New Zealand, Briscoe Group, Cavotec MSL, Hellaby Holdings, ING Property Trust, Michael Hill International and Methven, she said.
Craigs Investment Partners had a positive view of The Warehouse, broker Chris Timms said.
"The Warehouse has ceased to be the strong growth story of its halcyon days through the 1980s and 1990s but it remains an iconic Kiwi brand with a store footprint unrivalled and difficult to replicate.
"This adds to the defensive strength of the business, provides its `economic moat' and is potentially attractive to a third party."
Despite the emerging economic recovery, Warehouse management's outlook commentary at its first-half result was cautious and pointed to a challenging retail environment for the group, he said.
Management believed the retail recovery would be characterised by further aggressive promotional activity across the retail sector.
Craigs had a 12-month price target of $3.90 a share for The Warehouse.
Craigs had a buy recommendation on Contact even though the electricity company was facing fierce competition, Mr Timms said.
The retail customer churn had averaged 16% in the latest quarter. Retailers with the highest market shares - not just those with the most expensive offerings - were losing the most customers.
"Contact is badly positioned but, for now, has been able to keep its pricing at a premium and mostly been able to hold on to its customer base."
Contact's current generation was sub-optimal to take advantage of the current dynamic of the retail and wholesale markets, he said.
The new peaker and storage integration was likely to materially improve Contact's ability to extract the full return from its portfolio.
"We see the latest quarter as the trough in earnings and anticipate that as the different parts of the new system start to be incorporated, so the company's earnings should respond," Mr Timms said.
Craigs had a 12-month price target of $7.37. Contact last traded at $5.80.
