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NEW YORK (CNNMoney) — Despite uncertainty about the global economy and corporate profits, experts say stocks are still poised to move higher this year.
Stocks have already staged an impressive rally, with the major gauges posting their biggest first-quarter gains in over a decade. The advance has pushed the S&P 500 (SPX) its highest level in nearly five years.
The strong gains have raised speculation that the market may be due for a pullback. But traders say any so-called correction will likely be modest and provide an opportunity for longer-term investments.
“We think there’s more room to run,” said Kate Warne, chief investment strategist with Edward Jones. “The fundamentals have continued to move in a stronger direction in terms of earnings and economic growth.”
The outlook for stocks should become clearer next week when corporations begin reporting first-quarter earnings, starting with Dow (INDU) component Alcoa (AA, Fortune 500), which reports April 10.
Overall, earnings for companies in the S&P 500 are expected to grow just under 1% in the first quarter, compared with the prior year, according to S&P Capital IQ.
That would mark a sharp slowdown from the fourth-quarter of 2011, when earnings grew more than 10%.
What earnings would look like without Apple
In addition, much of the anticipated growth in the first quarter can be attributed to the strong performance of individual companies, such as Apple (AAPL, Fortune 500), rather than broad-based improvement across Corporate America.
Still, the fact that few companies have preannounced results suggests that earnings may beat investors’ very low expectations, said Kevin Rendino, senior portfolio manager at Blackrock.
“The good news is that we can expect another slew of very solid earnings reports,” he said.
In addition to continued earnings growth, investors say the recent rally can also be sustained because stocks are currently undervalued.
Stocks only look cheap
The price-to-earnings ratio for the S&P 500, which investors use to gauge whether stocks are cheap or not, stood at 14.2 at the end of March. That’s far below its average of 18 over the past 23 years, when S&P started measuring operating earnings.
“I recognize that there are potholes out there,” said Rendino. “But I also recognize that the market is very inexpensive.”
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