Bianco said there's a chance portfolio managers could chase performance into the end of the year, as they did last year. He expects the S&P 500 to finish the year 40 points higher at 2,050, and reach 2,100 by the end of next year.
He said one risk is if the 10-year note yield rises too quickly, or rises above 3 percent this year, which could sting stocks. Bianco also said he does not expect price to earnings ratios to rise into the Fed hiking next year, as they have done in other periods of Fed tightening. That would constrain the size of market gains.
The S&P P/E is already 17.5 percent on a trailing basis. "The earnings are not going to surge. There's going to be healthy earnings growth. That's why you want to lean toward health care and tech. Don't look for a cyclical bounce," he said.
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Thayer, however, likes cyclicals because of the improvements in the U.S. economy, but he notes materials and energy stocks could get hit with weaker commodities prices. He also said it's an unusual time where the U.S. economy and markets are breaking with the world, in a similar way as they did during the Asian crisis in the 1990s.
"I'm hoping the market takes more notice what happens with the dollar and commodities. We're seeing gold and silver break down. If that were to continue next week, I think that would be a positive for the credit markets, and wouldn't necessarily be bad for stocks," Thayer said. "We're in a period where we might see some rebalancing in the stock market. There could be some profit-taking."
Analysts have also been watching the financials, which could be poised for more gains, as the Fed moves to hike rates next year. The S&P financial sector rose 1.7 percent in the past week, and is now up 3.9 percent in the past month. Wells Fargo was at an all-time high Friday; JP Morgan was at its highest level since April, 2000, and Morgan Stanley and Goldman Sachs are both at their highest levels since the financial crisis.
Following the record-setting Alibaba IPO, the biggest bank or thrift issue ever is coming to market this coming week. Citizens Financial Group is looking to raise $3.36 billion.
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"I think a lot of people are watching new issues right now. I think that's a sign of confidence in the economy. I think that's a good thing. I don't think we've seen oversupply of new issues yet," Thayer said.
Analysts are watching the surge in mergers and acquisitions for the same reason. Barclays is recommending investors stick with the acquiring companies.
"The conditions that have caused this to be a unique M and A cycle, with acquirers' shares outperforming the market, remain in place. Debt financing costs are low, cash is elevated and should be put to better use, and there are potential tax savings available, all which can lead to higher EPS estimates and better stock price performance. Until these conditions change, we believe M and A will be a positive force for the S&P 500, as it has been recently," Barclays analysts wrote.
However, they do have a target of 1,975 on the S&P 500 for this year.