Wall Street’s most persistent bull unveils his 6-point case for a double-digit stock market rally this year (SPX, SPY, QQQ, DJI, IXIC, TLT, TLO, UST, USD)

Tom LeeBloomberg TVTom Lee.

Fundstrat’s Tom Lee has published his 2016 outlook for the stock market.

As expected, it’s bullish.

Lee left his 2015 target for the S&P 500 unchanged for 2016 at 2,325, implying stocks will rally about 12% from Wednesday’s closing price of 2,073.30.

Lee’s forecast is the most bullish among analysts tracked by Business Insider.

Like his peers, Lee highlighted a couple of things that investors are skittish about going into the new year. Among them, of course, is the impact that higher interest rates will have on markets now that the Fed has taken the first step and raised its benchmark rate.

Slow growth in emerging markets — particularly in China — a strong US dollar, and the recent sell-off in high-yield bonds are other reasons why some analysts say stocks may not give investors much to look forward to in 2016.

But Lee’s bullish thesis has six main convictions that lead to his call for a 12% rally next year:

  • Global growth will pick up speed to as much as 3.3% next year from 3% in 2015, propelled by US growth and a stabilization in emerging markets. Higher wages and government spending will be positives for the US economy.
  • The dollar will actually be flat or weaken in 2016 even though the expectation is that it would get stronger as interest rates go up. The dollar was one of the biggest drawbacks on corporate revenues this year.
  • A flattish dollar will propel S&P 500 earnings per share at a rate of 9%, squashing concerns about a profit-cycle recession. Lee forecasts S&P 500 EPS rise to $127 next year.
  • The high-yield market will recover after a rough 2015.
  • Stocks are the “new” bonds even as bonds weaken in a rising-rates and rising-inflation environment.
  • And one from the calendar: Stocks rarely deliver two straight years of flat returns. Instead, flat years are usually followed by double-digit years.

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