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 But even that fairly circumspect outlook faces significant risks,
including rising U.S. interest rates and a lackluster global
economy, the strategists said.
The S&P 500 is forecast to end 2016 at 2,207, up 10 percent from
Friday's close of 2,012.37 and 5 percent higher than where it is
expected to round off this year, according to the median forecast of
46 strategists polled by Reuters in the past week.
Strategists were similarly enthusiastic a year ago, when a similar
poll pointed to expectations for an 11.5 percent rise in the S&P 500
for 2015.
With just three weeks left in 2015, the S&P 500 is down a little
over 2 percent for the year. Strategists forecast it will rally into
year-end to 2,100, up 2 percent from 2014.
Even then, that would be the smallest annual increase for the index
since 2011, when it ended virtually unchanged.
"We think the (bull market) is going to continue but we're later
into the cycle, so the returns we're expecting are lower than what
we got earlier in the cycle," said Jill Carey Hall, equity and quant
strategist at Bank of America Merrill Lynch in New York.
She and other strategists pointed to a likely improvement in
earnings growth next year as a source of strength.
S&P 500 earnings are expected to increase 8.3 percent next year, up
from just 0.3 percent growth slated for this year, according to
Thomson Reuters data. The S&P 500's forward price-to-earnings ratio
stands at 16.7, still above the historic mean of about 15, based on
Thomson Reuters data.
"We think S&P 500 upside will be closely linked to earnings growth
delivery," J.P. Morgan strategists wrote in their 2016 outlook,
adding that energy will be less of a drag as long as oil prices keep
from falling further.
Still, strategists in the poll said the first U.S. interest rate
hike in nearly a decade will create further volatility in the
market, even if most investors have priced in a move for when the
Federal Reserve ends its policy meeting on Wednesday.
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If the Fed raises rates faster than investors expect, that will hit
consumer and business spending, they said. It will also likely boost
the dollar, which has been a drag on U.S. exporters' performance.
Respondents cited slower growth in China as among the biggest global
worries for U.S. stocks in 2016, along with further Middle East
turmoil and more terror attacks.
Yet many strategists expect some U.S. growth-oriented stocks,
including financials, will outperform. The S&P 500 financial index
is down about 5 percent for 2015 so far.
"Earnings in the financial sector could surprise to the upside next
year. Rising rates generally give them wider spread income, which in
this environment should pretty much go straight to the bottom line,"
said Peter Tuz, president of Chase Investment Counsel in
Charlottesville, Virginia.
The Dow Jones industrial average is forecast to rise to 18,975 by
year-end 2016, about 10 percent higher than Friday's close of
17,265.21. The Dow is forecast to end 2015 at 17,883.
(Additional reporting by Chuck Mikolajczak, Marcus Howard, Sinead
Carew, Rodrigo Campos and Lewis Krauskopf in New York, and Noel
Randewich in San Francisco; Editing by Chizu Nomiyama)
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