Year-End Market Outlook: Lots of Presents or a Lump of Coal?

NEW YORK (TheStreet) -- As we sit in front of the fireplace toasting record stock market highs, can investors expect more gifts this holiday season or a lump of coal in their stockings?

Looking at the current record level of the S&P 500, one can make the argument that the Federal Reserve's monetary experiment since the financial crisis has worked.

^INX Chart
^INX data by YCharts

With the third-quarter earnings season mostly behind us, total earnings for the S&P 500 companies reporting were up a healthy 6.9% over the same period last year, with 71.1% of companies beating Zacks Investment Research's estimates.

Sales were also up, with total revenue up 4.1% and 57% of companies beating on the top line. Even with a market price to earnings ratio of more than 19, the market has the underlying fundamental support, assuming it continues to grow.

With corporate earnings season now effectively priced in, what can send the market higher?

There are still many items on the list to be thankful for that bode well for both the economy and the overall market through the end of the year.

  • Central bank easing and loose monetary policy -- Recent economic stimulus actions by the Bank of Japan, European Central Bank and now China are helping ease investor fears that the U.S. economy will be dragged down by slow overseas growth.
  • Favorable retail environment -- A favorable jobs picture and declining energy prices are putting more money into the pockets of consumers. The cold weather now blanketing the country also helps to stimulate the purchase of winter merchandise.
  • Fed dovishness -- The Fed is not rushing to raise interest rates. Lower energy prices are keeping inflation in check. And the Fed does not want to derail stimulus efforts overseas.
  • Positive economic data -- With jobless claims steadily trending below the 300,000 level, a little bit of wage inflation may finally be on the horizon. The number of people quitting their jobs is at its highest level since before the financial crisis. That is actually a good sign! It means that people feel confident they will find another job if they quit the one they have.

So those are some of the things we have to be thankful for this holiday season. Are there any potential "lumps of coal?"

It was only a month ago that investors were spooked by Ebola and its negative implications for brick-and-mortar retail and airline travel. Although we have no active cases of Ebola in the U.S., that could change just in time for the holidays. Add in a little geopolitical risk or a domestic disturbance and that could derail a rally as well.

The U.S. markets appear to be on track for a year-end rally. Investors looking for bargains next year might consider looking abroad in those countries on the eve of quantitative easing. But through the end of this year, the stars seem to be aligning favorably for investors.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Jane Edmondson is a portfolio manager on Covestor, an online investing marketplace. She is also the founder of EQM Capital, a registered investment adviser.

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