With our economy currently facing high unemployment, a depressed housing market, and a strong potential for a global debt crisis, is a BIG stock market rally possible into the end of the year? CNBC reports that it is. Stock market bulls seem to be ignoring all signs of trouble and are not wavering from previously forecasted gains in the S&P 500 of 10% to 13% higher from current levels. The bulls believe that the current obstacles are temporary and have caused stocks to become oversold. Once the current issues fade the bulls will go on a massive buying spree and push the markets higher.
The following are four factors bulls believe are likely to lift the market through the end of the year:
1. The Upside of Fear – The market is known for its contrarian nature, that is when sentiment gets strongly positive a pullback is a good bet and when investors get over panicked, it is usually time to buy devalued stocks.
2. Earnings are Still Solid – Earnings reports should remain positive. A good start to second quarter earnings might get investor to focus on corporate profits instead of all the macroeconomic gloom.
3. “Soft Patch” is temporary – The issues currently affecting the economy are temporary. Fed Chairman Ben Bernanke has repeated called the conditions a “soft patch” that will be resolved as the year progresses.
4. Lower Gas Prices and Inflation – The recent drop in gas prices has provided consumers with some positive hope. In addition, the surge in purchases of US Treasuries indicates that inflation will remain low and/or under control.