Traders work at the New York Stock Exchange in New York, on Friday, March… (Scott Eells / Bloomberg )
It might be safe to look at your 401(k) statement again.
The Dow Jones industrial average and Standard & Poor's 500 index closed out their best first quarter since 1998. The run-up has sent nearly $1.85 trillion streaming back into stocks since January.
The broad S&P 500 rocketed 12% higher during the quarter while the blue-chip Dow surged 8.14%. Technology stocks were even hotter: The Nasdaq composite gained nearly 19% in its strongest launch since 1991.
Investors piled into the market amid signs the economic picture is brightening with solid job gains and improving consumer confidence. It has provided ballast for Americans trying to repair 401(k) retirement accounts ravaged during the financial crisis.
Almost nobody on Wall Street predicted the rally when 2012 got underway. And market pros are now scrambling to figure out how much longer it might last.
"You came into the year with investors' definition of risk being 'don't lose money,'" said Gary Flam, managing director of Bel Air Investment Advisors. "That changed to investors fearing they could miss the move and the upside. That's a dramatic shift over the course of just three months."
Stocks have been steadily rebounding after reaching a bottom in March 2009 just after Wall Street was slammed by the biggest financial-system crash since the Great Depression. The market was even able to overcome volatility late last year amid fears about the U.S. credit rating downgrade and economic uncertainty in Europe.
This year, financial stocks are up 22%, the best among the 10 industry groups within the S&P. Technology stocks rose 21%, while consumer discretionary stocks jumped 16%. The only sector that fell during the quarter was utilities, which were down 3%.
The Dow is now less than 1,000 points away from its all-time high of 14,164.53, reached in October 2007. The S&P is nearly 150 points from its record close of 1,565.15, also reached that month.
Many of the top Wall Street research houses are calling for the market to keep moving higher in the coming weeks. But their predictions are underpinned with jitters about everything from higher energy prices to political turbulence in the Middle East that could disrupt the rally.
The big rebound in stocks has sparked a debate about whether investors should sell some of the bonds that pack their portfolios to free up money to buy stocks.
One Goldman Sachs strategist declared last week that "it's time to say a 'long goodbye' to bonds and embrace the 'long good buy' for equities." While major stock indexes enjoyed double-digit growth, Morningstar Inc. reported the average intermediate-term bond mutual fund returned 1.79%.
That's still a tough sell for individual investors such as Kim Kruger who remain wary of the stock market after getting hammered during the 2008 global financial crisis.
The 51-year-old technical writer from West Los Angeles has only 35% of her investment portfolio in stocks, half the amount she would put in if she felt "totally good about the market," she said.
"I know some people who say rather adamantly that they're done with the market forever. I'm not like that," Kruger said. Still, she's holding back: "I'm watching and waiting — and sleeping nights, which is good."
Market bulls hope that more good economic data will help further boost the market's confidence. On Friday, investors were buoyed by stronger-than-forecast growth in both consumer sentiment and spending.
The Commerce Department reported that U.S. consumers increased spending in February even as incomes rose modestly. Meanwhile, a March reading on the Thomson Reuters/University of Michigan consumer-sentiment index came in better than expected.
But there are still a number of worries lurking that could put an end to the party.
"The wild card right now is energy prices," said Stephen Wood, chief market strategist at Russell Investments in New York.
Rising energy costs could hurt consumer spending and take a toll on corporate earnings.
Profits of companies in the S&P 500 are expected to rise an aggregate 3.2% in the first quarter, according to Thomson Reuters. That's down from 9.2% in the fourth quarter of last year, which itself was a decline from eight straight quarters of double-digit earnings gains.
Profits are expected to bounce back to 9.2% in the second quarter but recede to 5.3% in the third quarter.
Other factors are contributing to the slowdown in earnings growth, said Gregory Harrison, a Thomson Reuters analyst. They include weakness in Europe, slowing growth in China and the inability of companies to keep slashing costs.
And then there's the Apple effect. Profits have been so strong at the juggernaut behind the iPad and iPhone that they have had an outsized effect on the entire market. The Cupertino, Calif.-based tech giant's shares rose an astonishing 50% this year.