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Santa rally stealing some of next year's cheer

As the Santa rally lifts stocks higher, Wall Street's expectations for 2015 gains have gotten slimmer.

A survey of the calls of 15 top Wall Street strategists shows they are mostly optimistic for the stock market in 2015, even with anticipated rate hikes by the Fed, falling oil prices and a soft global economy.

But with the S&P 500's 5.4 percent gain in the past six sessions, the average expectation of those strategists is that stocks will rise just 6.6 percent next year, and some are forecasting the market will will be flat by year end.

Strategists acknowledge next year's gains could be impacted by the strength of the December rally. Tobias Levkovich, chief U.S. equities strategist at Citigroup, said part of the market's recent surge is due to short covering. His target is 2,200 for 2015.

"We think some of the rally stuff we're getting is borrowing from next year," he said.

Traders on the floor of the New York Stock Exchange.
Getty Images
Traders on the floor of the New York Stock Exchange.

The S&P 500 closed at 2,070 Wednesday, very close to the Street's low forecast of 2100, from Goldman Sachs and Barclays. The high targets are RBC and Fundstrat at 2,325.

The S&P 500 is up about 12.6 percent for 2014 so far, and a number of strategists raised their views as the year progressed. The S&P 500 has gained more than 200 percent since its March 2009 low.

As the bull market heads into its sixth calendar year, Wall Street may be cheering on another year of gains but with more turbulence along the way, especially around Fed rate hikes.

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2015 marks the start of a significant change in the investment environment where the Fed at some point will no longer be holding rates at zero, but other global central banks will continue to pump stimulus. That is expected to create turbulence, as the dollar rises and markets adjust to higher rates.

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Goldman analysts expect a "benign" reaction to the first Fed rate hike and they see stocks moving higher in the first half. But stocks could lose traction in the second half, as earnings contract as a result of Fed tightening, they wrote in their 2015 outlook.

"I think next year is going to be all about these moving parts. The cross currents for global liquidity are changing a lot of the relationships that have been in play for the last four years," said Gina Martin Adams, institutional equities strategist at Wells Fargo Securities. "Active asset managers will see some divergences develop. All boats will no longer be lifted by the rising tide."

Thomas Lee is among the forecasters with the highest targets. "I think stocks are going to do well in the end of this year, and I think people are going to start thinking about next year, and they're going to want to be positioned," said Lee, founder and strategist of Fundstrat Global Advisors. "They have various reasons to be optimistic about next year, everything from the gasoline dividend to QE taking place in Europe and Japan."

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Adams expects the S&P to end 2015 at 2,222, and she sees earnings helping boost gains. "Throughout this last earnings season and even through the last couple of months, analysts have given up on earnings prospects, anything with international exposure, energy exposure," she said.

She expects earnings growth of about 7 percent for 2015. "Earnings estimates for the next four quarters actually look achievable. Given how much they slashed and burned their expectations for 2015 earnings growth, they look achievable. ... Next year is really an earnings story."

Fourth-quarter earnings could be a "kitchen sink" type of quarter, especially for energy companies and those that might have been hit by a rising dollar or weak international markets. "I expect it to be rough," Adams said, adding she sees a volatile first quarter for the market. "Really, the first quarter will be the first quarter where we see no QE at the Fed and potentially new QE (quantitative easing) from the ECB (European Central Bank)."

Levkovich said the market can move higher even with Fed rate hikes next year, and financial stocks should ultimately benefit. He said he favors tech, and he is watching the beaten down energy sector for opportunities at some point.

Some oil analysts expect prices to bottom when demand drops at the end of the winter, or even later. "There's so much pain in the energy trade already, it may not be (a hurdle) anymore," said Levkovich. Stocks had been tethered to falling oil prices earlier in the month.

Some strategists are already recommending the energy sector, down 20 percent since June when oil peaked. The sector gained 9 percent last week, as investors jumped in. Morgan Stanley is recommending "overweight" and it sees a bottoming in crude in the second quarter of 2015.

Energy stocks tend to bottom two months before earnings revisions bottom, Morgan Stanley analysts noted.

Adams said the very source of some pain for the market could actually turn into a positive in the year ahead—the weakness in Europe and China.

Read MoreBlackrock's Rosenberg: Stocks will beat bonds in 2015

Lee agreed. "Europe is benefiting from lower oil and you also have the QE. I think international exposure is OK. I think that's an opportunity," he said.

Lee said a big story for the next year could be the reset of consumer balance sheets. He said now that seven years have passed since the first major wave of foreclosures, consumers who faced it could see their credit scores improve.

Lee said his top pick for 2015 is tech, and he also likes consumer discretionary and financials.

Read MoreHoliday decorations aren't the only thing starting early

Bob Doll of Nuveen Asset Management hasn't yet published a 2015 outlook, but he sees the S&P 500 rising to 2,200 to 2,250. "Another good, but not a great year," he said.

"I think stocks will beat cash. Stocks will beat bonds. Stocks will beat commodities, and stocks will beat inflation," said Doll. He likened the bull market to a baseball game, putting it at the sixth inning in terms of duration, and the seventh inning in terms of price.

"We're past the half way mark. Stocks have doubled. They're not going to double again," he said.

Wall Street S&P 500 targets for 2015:

Bank of America Merrill Lynch 2,200

Barclays 2,100

BMO 2,250

Citigroup 2,200

Credit Suisse 2,200

Deutsche Bank 2,150

Goldman Sachs 2,100

JPMorgan Chase 2,250

Morgan Stanley 2,275

Oppenheimer 2,311

RBC 2,325

UBS 2,225

Wells Fargo 2,222

BlackRock 2,160

Fundstrat Global Advisors 2,325