A Reasonable Prediction About This Years Stock Market

Published: June 1, 2016, 7:09 p.m.

b'After a shaky start to the year with markets down in January and the first 10 days of February stocks have rebounded nicely. And the S&P 500 index has made it back into positive territory\\u2014up!\\u2014about 1.5% or so year-to-date, but still down from this time last year.
With first quarter earnings mostly in (and disappointing results from many large retailers), many are now questioning the strength of consumer spending. But economic data from last week showed that it\\u2019s not all bad news on the consumer front because April\\u2019s retail sales figures showed a 1.3% increase, which was notably higher than expectations. Likewise, the latest reading of consumer sentiment rose from 89 in April to 95.8 in May, its highest level in 11 months. So economic data suggests that the consumer sector remains fairly healthy despite first-quarter earnings struggles at major retailers and energy companies. And with consumer spending driving two-thirds of our economy, things don\\u2019t look too bad going forward.
In addition to bullish trends in consumer spending, there are other reasons to be optimistic about the economy and the stock market.
So let\\u2019s look at the pros and cons as Bob Doll sees them. Bob is a well-respected industry veteran and is Chief Equity Strategist with Nuveen Asset Management.
On the positive side:

* Equity values\\u2014stock prices relative to earnings\\u2014do not appear to be stretched. In other words, stock valuations, for the most part, are fairly in line with corporate earnings. And because valuations are reasonable, we\\u2019re unlikely to see sharp corrections associated with stock bubbles. I agree with that.
* Earnings improvements should start to materialize in the coming quarters. The first quarter is often seasonal, impacted by a wait-and-see attitude by corporate executives before they make large capital spending decisions, and is where winter weather often plays a role in economic growth and earnings. But with positive economic data beginning to flow in and with strengthening consumer fundamentals, corporate spending and earnings should start to look up in the coming quarters.
* The oil rout appears to be over. Remember how oil prices kept falling down to about $26 per barrel just three months ago in early February? Well, prices have almost doubled since then and crude is now close to the $50 level, at a six-month high, and that\\u2019s been a major boon pulling the beleaguered oil and gas industry out of a dangerous slump that severely impacted stock market sentiment, capital investment, and jobs earlier in the year. And the good news is that with oil back up again, the markets too have gotten out of their February slump.
* Investor sentiment may be overly bearish, and I can tell you that almost everyone who walks in my door is bearish and waiting for some major bad thing to happen. And this ties into my earlier point: That equity valuations do not appear to be stretched and, in some cases, shares of good solid companies are trading at enticing discounts. Case in point, over the past few months, one of Buffett\\u2019s two major money managers within Berkshire Hathaway has built-up a $1 billion position in Apple stock, which was hurt by overly bearish sentiment to the point where those managers at Berkshire saw good value.
* Bob thinks corporate tax reform prospects for next year appear bright, so that too should boost corporate sentiment and spending\\u2026which, in turn, translates into more jobs, higher wages, better consumer sentiment, and economic growth. How he can tell this based on the current presidential candidates\\u2019 statements is a mystery to me, so we will see how this plays out.

But as I stated in one of my earlier commentaries, with the stock market there are always risks, as one type of risk rotates out and another rotates in to take its place.
The negatives include:

* The fact that Q1 earnings were shaky means investors are now taking a wait-...'