The Dow Jones Industrial Average closedand the broader S&P 500 has gained a remarkable 15 percent in just three months. Of course stocks never move in a straight line, so anytime markets rally sharply and quickly, it's not a bad idea to brace for a pause or pullback.
But to those who fear that stocks are out of touch with economic reality, Tom Sowanick, chief investment officer at OmniVest Group, says that mindset is "simply wrong."
"The performance of global equities continues to be decried by most market observers as 'too much too fast,'" Sownanick says in a new note to clients. "Another frequent comment is that equity rally is flawed because fundamentally nothing has changed in the global economy. Europe remains broken, Greece is unresolved and deflation is a bigger risk than inflation."
Yet the naysayers are ignoring critical economic and technical pillars supporting the case for stocks only gaining steam and momentum, Sowanick says. Here are his nine reasons the market will keep climbing:
1. The Federal Reserve and central banks in China, Europe and Japan are all engaged in either quantitative easing or some other form of monetary stimulus.
2. Economic confidence is on the rise in Europe, as is consumer confidence in the U.S.
3. At 8.3 percent, the U.S. unemployment rate is at its lowest level since February 2009. While the unemployment is still unacceptably high, it is important to recognize that the U.S. has added 2.52 million jobs in the past 16 months.
4. Germany's 6.7 percent unemployment rate is at its lowest level since the series was started in December 1991.
5. While equity markets have risen sharply since bottoming in the spring of 2009, the rally has been accompanied with an even sharper increase in corporate earnings.
6. Since the start of the year, bullish sentiment has declined from 48.88 to 43.69 while bearish sentiment has increased from 17.16 to 27.51. It is hard to find any hint that exuberance is being priced into the market.
7. Market leadership has been very consistent with the firming of economic data. The market is being led by financials, materials, industrials and technology. Conversely, lagging sectors of the market include utilities, consumer staples and telecommunications.
8. Iran is a problem and so too is the rise in oil and gasoline prices. However, offsetting higher gas prices are extremely low natural gas prices, as well as a very mild winter for much of the U.S.
9. Another factor helping consumers deal with high gas prices is the fact that consumers have been paying off debt for the past three years, Sowanick says.