Canaccord Portfolio Strategist Tony Dwyer said in a note this morning, that he expects the S&P to gain 15% from current levels and close the year at 1,575. He noted the current “pause is refreshing.”

Mr. Dwyer believes trends in core inflation provide the context for continued upward movement in equities. Specifically:

1. Fed policy is driven by core inflation, which should remain historically low.
2. The steepness of the yield curve and availability of credit are driven by Fed policy that should be extremely accommodative through mid-2013
3. Positive economic activity is driven by the steepness of the yield curve and availability of money – both of which remain stimulative
4. The direction of earnings is driven by economic activity, and while slow should remain positive and react to market rates
5. The equity market is most closely correlated to the direction of earnings, which remains positive

We would focus additional equity commitments into Financials, Information Technology, and Industrials as correction progresses and further evidence of sustainable improvement in (1) consumer sentiment, (2) employment and (3) housing emerges. In our view, outside of a geopolitical shock, the risk in such a bullish fundamental outlook is a rapid and sustainable rise in interest rates. At this juncture, there appears to be very little evidence of that happening, especially with long-term interest rates hovering around their current cycle low.