In August, I indicated that the stock market should rally back into our forecasted range of 17,000-17,500 by the middle of September, as long as there was no escalation in the various international conflicts. I also indicated that the ECB (European Central Bank) had some upcoming key meetings regarding its monetary policies. This month, the ECB announced its own stimulation policy to buoy its economy. This announcement, combined with our Federal Reserve’s announcement this week that interest rates will remain low, is leading me to adjust my 2014 stock market forecast to a higher level. I believe the market should now have the “fuel” to move slowly higher through year end, and it could reach 18,000 by the end of December.
I have stated that the stock market gains have been due to the easing policies of the Federal Reserve. It has been more than 1,075 days since the stock market has had a 10% correction. This is the 5th longest period of time in the US stock market without a reduction of this magnitude. The last 10% descent came in 2012 when Quantitative Easing program #2 concluded. Since 2008, the Federal Reserve has announced three easing programs. When the first two programs concluded, the stock market experienced a correction of more than 15%. The third easing program (QE3) ends in October. Without this stimulus, a logical conclusion would be a fall correction; however, the new program announced recently by the ECB should hold any correction at bay, and the stock market should slowly move higher. I am aware of many analysts calling for a large drop in the stock market, but with this announcement, I am raising my year-end target to 18,000. I do not see anything in our internal research at this point that gives me cause for concern. If my internal research changes, I will alert clients.