Here’s Why Stocks Will Continue to Rally This Year

Image of bull statueCNNMoney’s Paul R. La Monica, in opposition to many other mainstream analysts, is very bullish on U.S. stocks for five big reasons outlined below.

La Monica notes that investors say they’re nervous about the markets, but with the VIX near all-time lows, that fear isn’t being expressed in the numbers. His reasoning implies more gains ahead because:

Rally Reason #1: Analysts expect better second-half earnings

Despite first-half weakness, with much of the S&P 500 and Dow 30 companies posting lower profits from a year ago, expectations are much higher for the second half. When earnings season hits again in mid-October, a number of good reports from key firms could pave the way for more gains.

Rally Reason #2: Gains beget more gains

The longer the current rally lasts, the better the chances that it will continue for longer. Record highs shouldn’t be a cause for concern for investors. In fact, from a technical standpoint, new all-time highs mean zero overhead resistance — which is almost always a buy signal.

Rally Reason #3: Zero percent (or negative) interest rates

This is the most important reason stocks will stay high. Ben Bernanke himself recently wrote that the Fed won’t raise rates any time soon, and he would know. He used to work with those people.

The global outlook is much worse than in the U.S., with EU and many other areas seeing negative rates.

Rally Reason #4: M&A is on fire

Ultra low interest rates make it easy for companies to finance big acquisitions, and that’s exactly what they’ve done. Wal-Mart’s $3.3 billion acquisition of Jet.com is the latest in a long line of mergers and acquisitions activity this year. Expect the trend to continue.

Rally Reason #5: Where else can you put your money?

You can’t earn interest in the fixed income markets, so where can investors turn? Putting your money under the mattress doesn’t make sense, and big-time money managers are obligated to put their clients’ money to work. Where else but in U.S. equities can you deliver a decent return? I can’t think of many places, besides maybe precious metals.

The Dow Jones Industrial Average rose $56.64 (+0.31%) to $18,552.30 in Thursday morning trading. The benchmark price-weighted index, which is made up of 30 of the largest and most widely-held U.S. stocks, has gained 6.51% year-to-date, and 62.17% over the past five years.

DJIA-2016-08-11

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