Possible Market Scenarios {The Bull}

It's hard to believe that we're even publishing a bullish case for stocks given yesterday's market action, but there is a bullish scenario that can be made.  First for the basic chart parameters, see yesterday's chart right below this one, numbers 1-5.  Also I will again give my disclosure before we continue: 

Please note that this is scenario analysis and not a prediction or guarantee that any of these events will occur.  It is possible that more than one of these events could occur or none of them might.  You should consult your own financial advisor or do your own research if you are not a client of our firm.  Better yet you can hire us.  In short if you use anything that you see here or over the next few days without some follow up then you're on your own.   

Now let's take a look at the chart: 

In this scenario some combination of a better economic environment and more positive investor sentiment leads to a improved corporate earnings.  Aggregate corporate earnings estimates start to improve, perhaps owing to improvements in the oil patch.  When measured against extremely low interest rates, stocks carrying a forward market PE of 15-16 times 2017 earnings suddenly seem cheap.  This scenario would be helped along by a positive business outcome to the US elections and perhaps improving economies overseas.  This set of circumstances would also have the potential to be fueled by all of the cash setting in money market accounts or short-term bond funds earning almost nothing.  After a period of indecisiveness {blue lines on chart}, markets enter into rally mode in the late summer/early autumn period.  

Stocks rally to near or slightly above last year's market's highs around 2110 on the S&P 500 in late 2016-early 2017.  This has a probability of occurring of 20-30% based on our understanding of current events.

Stocks rally to near or slightly above the 2150 level on the S&P 500 in late 2016-early 2017.  This has a probability of occurring of 10-15% based on our understanding of current events.  

Stocks rally to higher than 2200 on the S&P 500 in late 2016-early 2017.  This has a probability of occurring of less than 10% based on our understanding of current events.

Chart is from TradingView.com.  Annotations are mine.

*We are long ETFs related to the S&P 500 and to energy although these positions can change at any time and without notice to readers of this blog.