Why the Stock ETF Rally May Have Legs | ETF Trends

Bulls’ confidence in a year-end rally is rising along with sentiment after the October stock burst. Although U.S. equities have already jumped 20% from the October low, some analysts say the gains can continue due to the economy avoiding a recession, cheap valuations and expectations Europe’s debt crisis will cool.

European stocks have vaulted 25%, Russ Koesterich, iShares Global Chief Investment Strategist said on the iShares blog.

“This is a big move, but is it justified? I believe so,” Koesterich said.

“First, and most important, a large part of the late summer sell-off was precipitated by a growing belief that the United States and the global economy were about to enter another recession,” he wrote. “While recent economic data is still soft, it has been largely better-than-expected, including Thursday’s third quarter gross domestic product report. The data confirms my view that the economy will continue to expand, albeit at a slow pace.”

Additionally, stocks look inexpensive, especially against bonds and “there is still room for some modest multiple expansion for most equity markets.”

The S&P 500 rallied around 11% in October. [Monthly ETF Performance Report]

The blue-chip index is trading at 13.2 times reported earnings, compared to its average of 16.4 since 1954, according to Bloomberg. [Equity ETFs Stumble Into November]