Wall Street builds case for year-end stock rally

October 17 01:31 2015

After the stock market’s first 10% drop in four years in late summer and fall rebound that followed, a growing number of Wall Street pros are making the case for a year-end rally. “The planks for a year-end rally may be falling into place,” says John Stoltzfus, chief investment strategist at Oppenheimer, adding that he thinks there’s a chance the market can make new highs by the end of 2015.635594119943931322-AP-FINANCIAL-MARKETS-WALL-STREET-70748234 (1)

Back in late August when the Standard & Poor’s 500 was down more than 12% from its May peak and the Dow Jones industrial was staring at a nearly 15% correction, there was talk of a looming bear market — not a year-end rally. But the stock market’s ability to stay above its scary summer lows and subsequent 8.4% rally off its 2015 trough now has investors viewing the outlook for stocks in a more positive light. Thursday’s big rally, which saw the Dow Jones industrial average soar 217 points and the S&P 500 jump 1.5% to 2023.86, leaving it just 5% off its May peak and down 1.7% for the year, gave credence to the bullish storyline.

The S&P 500 rally continued Friday. In early trading the broad U.S. stock gauge was 0.2% higher. “What makes (the year-end rally) happen,” says Stoltzfus, is the belief that “2016 will be a less harsh year.” Adding to the bullishness: Many of the headwinds that sparked the U.S. stock market’s biggest swoon since 2011 are no longer weighing down the market like they did earlier this year, says Don Luskin, chief investment officer at TrendMacro. “The big August correction was caused by the strong dollar, collapsing oil prices, a scary slowdown in China, and a Fed that seemed determined to hike rates despite it all,” says Luskin. “Every risk factor driving the big correction has reversed for the better now.”

Wall Street now doesn’t see an interest rate hike from the Federal Reserve until March 2016, as inflation has yet to show any signs of overheating at a time when recent economic data has come in a tad weak. Also giving investors courage to buy stocks is the fact that the triggers that normally cause bear markets, or market declines of 20% or more, are not visible. “When you look at things that cause bear markets, things like overvaluation or signs of recession, we don’t see any of that,” says Saira Malik, head of global portfolio management at TIAA-CREF. Nor does Malik see China suffering a severe economic slowdown.