Experts See Strong Gains in S&P 500

Barron's ran a piece over the weekend highlighting interviews with a dozen Wall Street luminaries from both the buy and sell side. The average estimate of 11 of the 12 (one opted out) for earnings for the S&P 500 index for 2009 is $60.22. The range between low and high estimates was huge with $50 being the lowest and $71 the highest. But if $60 is directionally correct, and at Friday's close of 887, the market is at 14.8 times forward earnings.

The same group was asked for their one-year target for the S&P and the average guesstimate was 1045, or almost 18% higher than Friday. The range of estimates was much tighter than the earnings spread and even the most negative earnings call ($50) was looking for 950 on the S&P in 2009. If 1045 was reached by the end of the year, then the market would be at 17.5 times trailing earnings.

The "Rule of 20"- which is not a rule at all but an observation of the market going back forever -- tells us that the price-to-earnings ratio and inflation rate adds up to 20. It is amazingly correct cycle in and cycle out. With headline inflation collapsing as fast as the price of oil, it's a good guess that the consumer price index for next year will be a low single-digit number. That would allow for a high-teen multiple on stocks. That would be my guess if 2009 proves to be the trough in earnings. I believe it will as there are signs that the Federal Reserve's dramatic actions are starting to loosen the credit markets.

Word came from a pal in Chicago that Fifth Third Bank (FITB - commentary - Cramer's Take) (why did they ever stick with that name?) is offering 30-year fixed rate non-jumbo mortgages for 5%, with zero points if you keep a $10,000 balance in a checking account. Mortgage money looks to be heading to 4.5% and with deposits growing, especially one-year certificates of deposit, as people are willing to lock up deposits to get some yield, the banking sector will be "forced" to lend money if it is to get any net interest margin at all.

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Vincent Farrell Jr. is chief investment officer for Soleil Securities Group and a regular guest on CNBC and other national print and broadcast media.

Prior to joining Soleil in August 2008, Farrell was a principal of Scotsman Capital Management. Before that, he was chairman of Victory Capital Management of Cleveland and chairman of Victory SBSF Capital Management in New York. He was a founding partner of Spears Benzak Salomon & Farrell, which was acquired by KeyCorp in 1995. Vince held a variety of positions in his 23 years at SBSF, including chief investment officer, and he served as the portfolio manager on a number of the firm's largest client relationships.

Prior to joining SBSF, Vince spent nine years at Smith Barney as a vice president, sales.

Vince graduated from Princeton University in 1969 and received his MBA from the Iona College Graduate School of Business in 1972.