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3 Reasons Why the Stock Market Rally Will Continue

Breakout

The S&P 500 (^GSPC) has done more in three months than it typically does in an average year.  That is, rise by about ten percent.   While the official 3-month tally is 10.58%, and the year to date total is now above 26%, some say this red-hot, record-high stock benchmark still has more to go.
 
“One word - higher,” predicts iiTRADER senior market strategist Bill Baruch in the attached video.  “The Fed is there. They’re the backstop. Everyone is worried about trimming (a.k.a. tapering), but trimming is a good sign. It shows the economy is improving.”

Of course, we and the Fed will all have a better indication as to the actual strength of the recovery when the latest GDP and Jobs data comes out later this week.  But in the meantime, it seems clear that the central bank, and its incoming chairman Janet Yellen, are in no rush to become the headwind that they’re currently trying to offset.

Aside from the Fed, S&P Capital IQ strategist Sam Stovall writes to clients today that great years for stocks have historically been followed by good years rather than crashes.

“Since 1945, there have been 21 times that the S&P 500 gained more than 20%. In the following year, the S&P 500 recorded an average increase of 10%, versus an average price gain of 8.7% for all years since WWII,” Stovall reveals, adding that these “good years” were positive 78% of the time.

Add in the fact that December holds the title as the single best performing month of the year for the S&P 500 (averaging gains of 1.9% for the past 50 years), and you’ve got a nice seasonal-momentum tailwind working in your favor.

Still not onboard the bullish train?  

Baruch and many other investment professionals are also quick to point out that, beyond the Fed and the Christmas seasonality, corrections are also buying opportunities that should benefit from an ongoing influx of money that continues to migrate into stocks from the slumping bond market.

“Overall, I’m only playing corrections to be a buying opportunity,” Baruch says, targeting a five percent trough level of about 1,700 for the S&P 500, before rallying to 2,000 by the end of 2014.

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