We'll see if bulls or bears are right in the second half

What will be the main theme in the second half of 2016? It's all about "TINA" vs. earnings/ valuations.

Besides determining if Brexit is a long-term problem for U.S. stocks or a short-term blip, the main issue is the tension between investors who believe that with rates lower for longer, "there is no alternative" to owning stocks (TINA) and those who believe valuations and earnings estimates remain way too high and that the market will correct lower as soon as the majority realizes this. So, who's right here?

At first glance, the whole TINA argument sounds long in the tooth. First, there are always alternatives to, well, TINA. Investors are continuing to flock to higher-yielding bond alternatives. High-yield ETFs (like HYG (NYSE Arca: HYG)) and municipal bond ETFs (MUB (NYSE Arca: MUB)) have seen renewed inflows, with the MUB hitting a multi-year high. Interest-rate sensitive sectors (REITs, telecoms, utilities) have been the market leaders this year.

Investors are still flocking to gold, as well. The main gold ETF (GLD (The Stock Exchange of Thailand: GLD-TH)) has seen its assets under management increase 50 percent this year. Gold hit a two-year high on Friday.

Second, the bears are right on at least one level. Thanks partly to Brexit , earnings estimates for several key sectors are likely too high and will have to come down.

This is almost certainly true of banks, which may suffer from the lower for longer interest rate scenario. Most analysts are modelling in a couple rate hikes in the next year, as well as a steeper yield curve, which would positively influence bank earnings.

CLSA bank analyst Mike Mayo estimates that for the 20 largest banks, every 100 basis point increase in the fed funds rate can add 10% to earnings. If your model assumes at least one or two interest rate hikes in the next year — as most do — and we now have an expectation of no hikes, that means estimates are too high. Mayo also notes that higher costs, complexity, currency issues and slower capital market activity is also likely to weigh on bank earnings.

Not everyone agrees that lower for longer will hurt banks. Dick Bove at Rafferty Capital argued that banks have had extended periods of low interest rates in the past that did not impact their earnings.

A dollar spike is another big issue. The trend is still not clear, but the greenback climbed right after the Brexit vote.

What's clear is there was a spike in the dollar at the end of last year that turned into a huge problem for materials, industrials, energy and many technology companies, all of which cited dollar strength as an issue. Many lowered earnings expectations because of that.

The dollar and interest rates are an issue because after five consecutive quarters of negative earnings growth, the third quarter is supposed to be positive, but just barely. Small moves in guidance from a few big companies will send both earnings and revenues back into negative territory.

My read on this is pretty simple: There is a modest upside for stocks in the next year, but thanks to global uncertainty, a more significant downside.

Right now, analysts are modeling earnings estimates of $135 for 2017, according to FactSet. If we assign a"normal" multiple of 17, then we get 2,295 for the S&P 500 in 2017. Right now, we are at roughly 2,100.

That means the upside for the S&P into the next year is 200 points, or roughly 10%.

That's not terrible. But remember, these numbers are historically optimistic and usually come down, particularly during periods of high uncertainty.

I'm anticipating that sectors with strong exposure to currency issues and the negative impact of lower rates will be more cautious in the second half of the year, and that those numbers will indeed come down.

That certainly makes that 10% upside a bit tougher to hit.

We have an upside, but the downside is much tougher to call. We have "known unknowns" like the U.S. presidential elections and the Italian constitutional referendum in October, but (by definition) we don't know the outcome. Both could be significant market movers.

My sense is that we are in a trading range for the next year, but a broad one. The February low of 1,831 as a bottom, with a high of 2,300. We are likely to muddle through in the middle, but you get the point: there is more downside risk than upside surprise.

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