32 Reasons Stocks Will Jump This Year

26. A low supply of U.S. stocks and increasing demand will make for a lethally bullish combination.

27. Merger and acquisition activity will remain robust. Private-equity buying power currently is projected to be around $1.5 trillion, and S&P 500 companies are flush with $609.6 billion in cash, double the amount they had in 1999.

28. The supply of U.S. stock will remain low. The total value of U.S. shares contracted in 2006, despite stocks' rising prices, by the greatest amount in 22 years as a result of booming M&A, giant corporate stock buybacks, muted IPO activity and limited secondary offerings. I expect more of the same in 2007.

29. Options backdating scandals will subside, and investors finally will begin to view U.S. stocks' balance sheets as the cleanest and most transparent in the world.

30. The belief by many that the U.S. is still in a secular bear market will completely fade as the S&P 500 breaks out to an all-time high, joining the DJIA and Russell 2000.

31. The price-to-earnings ratio on the S&P 500 will rise to 18.1 by year-end. Despite a 92.0% total return (which is equivalent to a 16.3% average annual return) for the S&P 500 since the October 2002 bottom, its forward P/E has contracted relentlessly and now stands at a very reasonable 15.6. The 20-year average P/E for the S&P 500 is 23.0. The S&P 500's P/E multiple has contracted for three consecutive years. It has contracted for four consecutive years only twice since 1905. Each point of multiple expansion is equivalent to a 6.6% gain in the S&P 500.

32. "Growth" stocks will lead the broad market higher, with the Russell 1000 iShares(IWF Quote) rising a total of 25%. On a price-to-cash flow basis, "growth" stocks are cheaper than "value" stocks for the first time since at least 1977. Almost the entire decline in the S&P 500's P/E since the bubble burst in 2000 can be attributed to multiple contraction in growth stocks. Technology, telecom, retail, biotech, medical, health care, investment banking, restaurant, gaming and airline shares are likely to be the top performers.