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It all came to a head today -- massive losses in the major indices, a spike in inflation, talk of a capitulation and a bottom, followed by a spectacular rebound. That rebound hasn't erased investor concerns about the spate of disappointing earnings reports and the future of growth, both in terms of profits and the economy.

But the faith of the staunchest bulls hasn't been shaken, and some were even emboldened by today's rebound in the major indices. Strategists on the Street are sticking to their guns.

Joseph Battipaglia, chairman of investment policy at


and acknowledged as one of the Street's most inveterate bulls, wasn't flinching (the hold music on Gruntal's telephone system cheerily played

My Blue Heaven


In an interview today, he reaffirmed his year-end forecasts -- 12,500 on the

Dow Jones Industrial Average, or a 25% rally; 1625 on the

S&P 500, or a 21% bounce; and 4300 on the

Nasdaq Composite Index, a 35% jump. That's an incredible surge to pack into the last seven weeks of the year, cutting out the year-end holiday week.

Remarkable as it may seem, he's not alone. Bullish

Goldman Sachs

chief strategist Abby Joseph Cohen, who didn't return a call, said in a written comment Tuesday that her estimated "fair value" for the S&P at year-end remained 1575, adding that a significant "risk premium" had now been built into the equity market.

Lehman Brothers'

Jeffrey Applegate, sounding a bit wary in a Monday comment, continues to view the S&P 500 as fundamentally undervalued. He spoke to's

Aaron Task

for a

column earlier this week.

Table-Pounding on Fundamentals Continues

The bulls' reasoning for remaining unwaveringly positive hinges on themes they've been pounding the table about for much of this year: Earnings growth remains reasonably strong, the economy continues to chug along and inflation, despite today's spike in consumer inflation, isn't looming large.

"Our thesis is challenged, but we believe it'll be ultimately successful," Battipaglia said today. "The only things that put a bear market in place are recessions and inflationary spirals. Absent those events, you have a bull market tendency."

Now, with the S&P 500 trading 12% below its peak, the most bullish market strategists are leaning on the valuation argument. Cohen, in her comment, said the S&P is 15% undervalued based on expected fundamental performance. Others joined that chorus:

Robinson Humphrey

chief investment strategist Robert Robbins said he expects a 23% rally in the S&P 500 by the end of the year.

The funny thing is, the valuation argument is gaining credence with some of the bears also. Valuations, especially in technology stocks, have been ratcheted down sharply since the beginning of September. For months, stocks were trading on unrealistic expectations for growth, and with the exception of the most speculative stocks, they've relaxed to valuations that are closer to the historical norm. The price-to-earnings ratio of the S&P 500 is currently about 24.5, its lowest level since September 1998.

"We thought that stocks had been looking pretty rich, and most of that richness is gone now but we're getting to what looks like appropriate value," said Thomas Van Leuven, strategist at

J.P. Morgan

. The difference between Van Leuven and others is that he's looking for a 2001 year-end target on the S&P of 1400, just a 4.4% increase from current levels.

Van Leuven's thesis is predicated on a steady erosion of profits due to higher wage and fuel costs and a decline in demand. He sees earnings growth for S&P companies in 2001 at about 7%, lower than the current 12% to 13% consensus estimate for growth.

Stanley Nabi, vice chairman of

DLJ Asset Management

, said the decline in valuation has made "80% of the market buyable." He, like Battipaglia and others, isn't worried about a recession; he doesn't see the economy turning that sharply with record levels of employment, low inflation and a steady appetite of consumer spending.

"The market will be squeezed down further between now and end of the year," said Nabi. "Whether the recovery will be swift is the question. I don't think it will be. We'll have a relatively decent market next year, and we may then have normal returns of 9% to 11% a year and not the spectacular returns of the last five years."