JPMorgan: 9 things need to happen for a market rally into year-end

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The S&P 500 hasn’t moved much since July.

And JP Morgan analysts, led by Adam Crisafulli, say that a ceiling remains on the market as earnings estimates bleed lower amid mixed earnings reports in recent weeks and valuations become more stretched.

But, they also say a rally into year-end is still possible in to year-end if the following nine things happen:

First, a Democratic presidential win with a balance of power. Crisafulli wrote the “best-case” election scenario would be a Hillary Clinton win with a Republican Senate and House. But the “base-case” of a Republican House with a Democratic Senate and White House would suffice.

Two, the European Central Bank doesn’t taper, ending its quantitative easing program, especially given the still fragile and uncertain economy. Or if it does, that it doesn’t make a decision to taper until early 2017.

Third, Deutsche Bank (DB) settles with the Department of Justice for four to five billion euros or less. The uncertainty of the settlement continues to hang over the bank and the financial sector.

Fourth, the Italian referendum on December 4 proves to be a non-event. The outcome will be crucial for Prime Minister, Matteo Renzi, who said he would resign if the vote went against him. The worry for investors? That Renzi’s departure puts country into disarray and sparks a more significant crisis in the EU economy, especially amid the Brexit uncertainty.

Fifth, the Organization of Petroleum Exporting Countries (OPEC) acts to trim output in its upcoming meeting on Nov. 30 or continues with its rhetoric of a intervention strategy that will keep oil prices afloat.

Sixth, there is no budget “nonsense” in Washington and that no one makes threatening remarks about the debt ceiling. The current spending authorization due to expire on Dec 9.and the debt ceiling is due to be reinstated in March 2017.

Seventh, German Chancellor Angela Merkel confirms plans to run for a fourth term, as she is seen as a source of stability in the region. An announcement could come around late Nov, according to press reports.

Eighth, the 2017 S&P EPS estimate doesn’t fall below $120-125. It stood at $130 a few weeks ago but has since bled lower by a few dollars and puts more pressure on the already-stretched market valuation.

Ninth, the Fed proceeds with a hike rates on December 14—which would reflect the economy remains stable and strong—and either leaves the dots (ie forward-looking rate increases) unchanged or shifts them lower, signally a still gradual and slow rate hike.

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