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7 Reasons the Stock Market Can Continue to Climb

Kira Brecht

As the stock market surges to dizzying heights, with the Dow Jones industrial average leaping over the 21,000 barrier, it begs the question, can this rally continue? As traders say, the trend is your friend, until it's not.

The current bull cycle in stocks is old by historical comparisons, touching its eighth birthday this March. The U.S. stock market has had 11 bull markets since 1926 including this one, says David L. Blain, chief executive officer at BlueSky Wealth Advisors in New Bern, North Carolina.

"They averaged 54 months long and a total of 154 percent gain," Blain says. "The current bull market began in March 2009. It's gone on 95 months and has achieved approximately a 231 percent gain."

Despite its age, analysts aren't giving up on the stock bull.

[See: The 9 Best ETFs to Buy Under President Donald Trump.]

"I certainly wouldn't rule out the possibility of a correction of 10 to 20 percent, but a significant bear market of 2008 proportion is not likely," Blain says.

The rally can certainly continue, says Brad McMillan, chief investment officer at Commonwealth Financial Network Waltham, Massachusetts. "Markets are at all-time highs, so there is no resistance above. It can go higher than almost anyone now expects," McMillan says.

Here are seven reasons analysts think stocks can continue to rally this year.

U.S. growth expectations have changed. The market has shifted from being worried about lower growth for longer to expecting more growth sooner rather than later, says Chris Zaccarelli, chief investment officer for Cornerstone Financial Partners in Charlotte, North Carolina.

"Going forward, the Dow can move significantly higher from here as long as the policies the market are expecting -- corporate tax reform, deregulation and infrastructure spending -- are enacted," Zaccarelli says.

Protectionist concerns may be overblown. "I don't believe Trump wants a trade war with anyone," says Sean O'Hara, president, Pacer ETF Distributors in Paoli, Pennsylvania. "I think he wants fair trade, and the best way to do that is through bilateral discussions as opposed to these behemoth trade agreements like NAFTA and the TPP."

Even if some of Trump's protectionist message takes hold, O'Hara adds, there are areas of the market that can still perform.

"For example, mid-cap stocks, which historically have outperformed large-cap stocks and tend to have low correlation to fluctuations in international trade or currency valuations," he says.

Interest rates are still historically low. Even if the Federal Reserve hikes interest rates two or three times this year, the benchmark federal funds rate will still be at extremely low levels by historical comparisons.

"Lower interest rates help consumers keep their debt payments lower," says Eric Aanes, president and founder of Titus Wealth Management in Larkspur, California. "In turn, this gives consumers more disposable income to put back into the economy to help businesses to grow."

Corporate earnings are strong. Earnings are the No. 1 driver of long-term equity returns, says Ryan Detrick, senior market strategist at LPL Financial in Charlotte, North Carolina. "Fourth-quarter earnings gained more than 7 percent year over year, on the heels of gaining more than 4 percent in the third quarter," Detrick says.

There's good news ahead too. "We see the potential for high single-digit earnings growth the remainder of this year, which should help support equity prices at current levels, and even push them higher," Detrick says.

The January barometer is positive. A good start to the year usually bodes well for equities the rest of the year, Detrick says.

[See: 7 Dividend Stocks That Pay More Each Year.]

"Since 1950, when the S&P 500 is higher in the month of January -- like it was in 2017 -- the remaining 11 months are higher 88 percent of the time," he says. "The full year total return for the S&P 500 has been higher 26 out of 26 times when both January and February are higher. Given both were higher in 2017, that is a good clue to expect this bull market to survive at least the rest of this year."

No recession in sight. An economic recession is generally defined as two consecutive quarters of negative GDP growth. Typically, a recession is a negative factor for the stock market.

"Right now recession is not threat. The index of leading economic indicators, a forecasting tool, is positive," BlueSky's Blain says.

Others agree. "We believe that growth in the U.S. and abroad remains on solid footing and that the near term risks of a recession remain low," says Jim Davis, regional investment manager with the Private Client Group of U.S. Bank in Springfield, Illinois.

Housing market is strong. National home prices hit a 2.5-year high in December, according to the S&P CoreLogic Case-Shiller 20-city index. This helps consumers with their net worth and can fuel a wealth effect.

"The feeling or perceived feeling of interest rate increases has fueled strong home sales as the consumer wants to get in now or refinance before interest rates go up," Aanes says.

So, what ends bull markets? "What kills bull markets isn't old age, it is too many excesses," Detrick says. That could be over-spending like what happened in the late 1980s and led to the early '90s recession, or overleverage as occurred in 2006 ahead of the financial crisis, or overconfidence such as that seen during the tech bubble, Detrick says.

[See: 10 Ways to Buy Industrial Stocks.]

"Those are the hallmarks of the end of economic growth cycles and equity bull markets, not old age," he says. "Currently we aren't seeing the type of excesses we've seen at other major market peaks -- suggesting this bull might be old, but he has plenty of life left."

If you have cash to put to work, stick to your plan.

"Always remain diversified and don't go all in for any reason," Detrick says. "We do think this equity bull market will continue, and as the economy moves to late-cycle, we fully expect volatility to pick up. Don't be fearful when it does, use the pullbacks to accumulate positions for the long run. It might sound easy to say, but one hallmark of this bull market is once we have a dip, everyone panics and sells. Do your best to not fall for that trap."

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