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Stocks rise again, as bullish sentiment grows

February 13, 2012|By Nathaniel Popper

Reporting from New York — Another morning of rising stock prices, another day of debating whether the recent stock rally has gone too far.

Stocks have started the week on an up note thanks to the Greek Parliament's decision to move forward with a plan that will cut more from the budget in order to win the country more aid from the international community.

The benchmark Standard & Poor's 500 index is up 0.6% or 7.23 points to 1,349.94 this morning. The rise comes after U.S. markets experienced their worst day of the year to close out last week. That set off speculation that the market may have reached a top for now. The S&P 500 is up 7.4% for the year. 

But a broader optimism has been pushing the market up in recent weeks, as several economic indicators have pointed to a stronger U.S. recovery than expected. In a poll by the American Assn. of Individual Investors, 51.8% of the investors surveyed said they are feeling bullish, while only 20% said they are bearish.

The mood is perhaps best captured by the cover of the new edition of Barron's, which predicts that the Dow Jones industrial average will hit 15,000 (that is, for the record, about a 2,150-point rise from where we are today).

"The odds are better than two chances in three that the Dow Jones Industrial Average will reach 15,000 or higher over the next two years," the accompanying story said. 

Nicholas Vardy has been among many market watchers who have argued that magazine covers are one of the best contrarian indicators -- when the journalists are bullish, it is time to sell. Vardy pointed to academic research that found that companies portrayed negatively on magazine covers beat the market by 12.4% on average, while those that received positive coverage only beat the market by 4.2%.

There are indeed a number of potential problems coming down the road, including the situation in Greece and a number of political deadlines facing Congress in the U.S.

Whether the market can overcome these obstacles is an important question for retail investors, who have largely missed many of the recent gains and are now wondering whether it is time to get back into stocks. Investors continued to get out of stock mutual funds during January, according to data from the Investment Company Institute.

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