There are three reasons to be bullish and none have anything to do with a robust economy. Valuations are very reasonable, sentiment is extremely negative and we are about to enter the seasonally strongest months of the year.
Even with lowered estimates the S&P 500 trades at its lowest multiple to trailing twelve months and forward earnings in decades. We are currently trading at less than twelve times next year's lowered estimates. Almost every sentiment indicator is pointing to extreme pessimism. Historically, it has paid to buck the crowd when they have been this negative. Thirdly, we are entering the strongest six months of the year.
There are certainly risks as imbalances that have grown over decades are coming home to roost. However, with Lehman Brothers so fresh in the minds of policy makers it seems likely that they will kick the can at a minimum. While I respect the risks, I believe the odds favor a higher market. That said, the imbalances keep me from being as aggressive as I would like to be.