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What Investors Can Do Until Stocks Rally Again

The summer stock market rally has lost steam, with equities treading water since their mid-September highs. But some market pros expect the rally to resume after this recent pause.

NYSE trader
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NYSE trader

“This has been a relatively low volume rally,” Richard Weil, CEO of fund manager Janus Capital, said in a CNBC interview. “I think it still has legs. I think multiples are reasonable and there’s room to go.”

But investor fears may need to be allayed before stocks move higher. Worried about a potential meltdown in Europe, the U.S. fiscal situation, Mideast tensions and a potential hard landing for the Chinese economy, Weil said investors are sitting on the sidelines.

And those investing in stocks have tended to favor larger, well-known names, Weil said, which have outperformed the broader S&P 500 so far this year.

Indeed, Disney , Home Depot , Anheuser-Busch Inbev , Bank of America, Amazon.com and — of course — Apple are among the big caps that are up more than 40 percent this year. That makes the S&P 500’s nearly 16 percent gain look paltry.

Dividend payers have also performed well as investors flock to yield and safety amid the global uncertainty.

Some strategists are advising investors to stick with the dividend and growth themes. Citigroup’s Tobias Levkovich is advising clients to stay with large caps, stocks with chunky yields and to prefer growth over value.

KKR’s Henry McVey also echoed that call on CNBC, saying investors should seek yield, growth and inflation protection. “As we have bumpy economic growth globally, public investors are going to migrate to those names,” he said. (Read More:20 Stocks With the Potential to Pop.)

Money should also start coming back into the markets as those fund managers that are lagging their benchmarks start putting the cash sitting on the sidelines back to work, Fulcrum Securities’ Rob Morgan told CNBCon Tuesday.

He also said that third-quarter earnings could be the trough. While markets are expecting a dismal reporting season, which gets underway with Alcoa next week, Morgan said “looking out a little bit longer term, earnings estimates are starting to rise a little bit.”

Getting the government to put its fiscal house in order could also provide the bulls with more support. Whether the U.S. addresses the “fiscal cliff” — when automatic spending cuts and tax increases go into effect at the start of the year — is likely to hinge on the election. The first of three presidential debates kicks off Wednesday night. (Read More:Claims Likely to Surface in Debate and Facts Behind Them.)

Art Hogan, of Lazard Capital Markets, said that a Romney victory would be great for stocks in the last two months of the year as he may handle the fiscal cliff more quickly than if Obama wins reelection. “The two levels of stock appreciation will be the assumption that you get better growth in the economy and the fiscal cliff gets fixed quicker,” he said in an interview Wednesday.

In addition to digesting the spin from debates, the central banks will be back in focus on Thursday. Both the Bank of England and EuropeanCentral Bank hold meetings and the Federal Reservewill release the minutes from the September meeting when they announced a new round of monetary stimulus. The ECB and BoE meetings are likely to be uneventful.

"The market is expecting nothing from the ECB tomorrow," Willie Williams, director of institutional derivative sales at Societe Generale, told CNBC. "At the last meeting, they gave us a lot of what we needed" when they committed themselves to keeping the euro zone together. (Read More:Your Setup Trade for the ECB Meeting.)

Questions? Comments? Email us at marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.