Growing Bullishness: A Sign to Sell or Justified Optimism? Wall Street loves its superstitions. At this time of year, for example, investors are bombarded with proclamations that the "January effect" should boost stocks during the month despite thin evidence for the belief.

Another supposed truism: Betting against the crowd is always a wise move. That inclination is causing plenty of consternation as swelling investor optimism accompanies a strong rally for stocks to kick off the year.

But investors should avoid this sort of bumper-sticker advice and focus instead on the fundamentals. And when it comes to key factors for stock prices over the intermediate term, like economic growth and valuations, the brightening mood seems well justified.

Reading the Market's Pulse

Also, the impact that swaying sentiment has on stocks may be more complicated than is generally portrayed, according to some of the sharpest investors around.

Barton Biggs, head of juggernaut hedge fund Traxis Partners, had a better sense than most last year of the market's pulse. After a brief bearish spell amid the summer gloom, Traxis quickly turned bullish ahead of the major move upward toward year-end. Biggs recently said the market is overbought in technical regards, and overall sentiment is bullish. But he cautioned that while widespread pessimism can set the stage for rallies, the opposite may not be true.

"We are supposed to be contrarians, so we pay a lot of attention to sentiment and even chart it," Biggs recently said on CNBC. Over the years that Traxis has studied sentiment, "we find it is very valuable when it reaches extremes of bearishness, but not particularly valuable at all when markets get overbought."

A Good Time to Run With the Bulls


Given the steady flow of strong economic reports, growing investor confidence is perfectly understandable. U.S. manufacturing activity accelerated in December to post a 17th consecutive month of gains, according to data released Monday, and construction spending also came in well ahead of analysts' expectations.

For all the talk of investor euphoria, stocks remain reasonably valued. S&P 500 trades at about 13 times forward earnings estimates. That's a modest multiple by historical standards, particularly since interest rates -- while showing signs of rising amid the current growth prospects -- remain low.

But even as broader market valuations remain grounded, some bulls are pounding the table for big gains ahead.

Larry Robbins of multibillion-dollar hedge fund Glenview predicts the Dow Jones Industrial average will soar to more than 20,000 by the end of 2013, according to some reports. Earnings would grow 5% a year, while earnings multiples would expand 45% in that scenario.

Far-fetched as it seems, that type of bullishness may grow more mainstream if the economy continues to show momentum. And while investors are constantly told to go against the grain, for now, they might find it wiser to go with the flow instead.

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CnOWrms1

Libs are crying, wah. "Republicans are going to take away all of your benefits. Republicans are going to take away everything! Republicans are going to make you sick and die. The Republicans want you dead!" If there was any truth to that, the stock market would have dropped significantly.

January 05 2011 at 1:21 AM Report abuse +1 rate up rate down Reply
CnOWrms1

The death panels are in play and Obamacare is healthcare rationing. It's with Obamacare that people will die "As the secretary shall decide," who would be Kathleen Sebelius. Pelosi said: " If everyone in America was very, very pleased with his or her health insurance and had no complaints and had access to quality, affordable health care in our country, it still would have been necessary for us to pass the health care reform bill because we could not sustain the system. To say we're going to repeal it is to do very serious violence to the national debt and deficit." Not required to buy Obamacare, not true. 16,000 new IRS agents to be hired to make sure that you do buy it. Here's a destructive part of Obamacare: Medicare recipients will receive 50% off of their drugs when they hit the "doughnut hole". Two things could happen: government has the power to go into the drug company and demand that the drug company discount that drug, and that drug would be taken off of Medicare's approved list because it would reduce pharmacy profits/raise pharmacy expenses.

January 05 2011 at 1:17 AM Report abuse +1 rate up rate down Reply
CnOWrms1

Boehner said we're going to "cut a hundred billion dollars." Where the cut(s) will be has not been identified, so the libs are immediately saying republicans are going to eliminate Social Security and Medicare, and school lunches. What the libs are really saying is Do Not Touch Our Entitlements. To say that there are no spending cuts of any size that can be made is to basically agree with the premise that there was no reason to have last year's election, that there's no reason to ever have anybody but Democrats in office.

January 05 2011 at 1:15 AM Report abuse +1 rate up rate down Reply
2 replies to CnOWrms1's comment
Trevor

Why not end things like Socialist Insecurity or school lunches? After all, Socialist Insecurity is a ponzi scheme that would be outlawed as fraudulent with the organizers prosecuted if it were offered even on a voluntary basis by the private sector. And nobody has suggested that free American citizens should be banned from voluntarily providing school lunches to others children if that is the manner in which they choose to allocate some portion of the fruits of their labor.

January 05 2011 at 11:14 AM Report abuse rate up rate down Reply
CnOWrms1

Good comment, and ending Social Security has been a topic of discussion for decades. Our elderly's checks are so little, barely enough for groceries. As for school lunches, I find that more controversial. I can understand supply orange juice in the morning and milk for lunch, so that students are more attentive, but supporting them until students go home is too much. Students need a better education system and better teachers. No more rubber rooms.

January 05 2011 at 12:35 PM Report abuse rate up rate down Reply
CnOWrms1

The waste of taxpayer money from Obama's failed policies was reckless. Have any dems had the experience of taking a simple accounting course? If I threw away company money of the company I work for, there would be consequences. It wasn't my money to waste. I would have to pay it back.

January 05 2011 at 1:08 AM Report abuse +1 rate up rate down Reply
Larry

old wall strret saying: sooner or later, the lambs get fleeced and the pigs get slaughtered.

January 05 2011 at 12:53 AM Report abuse rate up rate down Reply
Cobra

ioogogh wrote:

"yeah,this second worst economy in US history proves it too....LOL.....26 year high unemployment??bahahhahahaha,6 year low dow???LOL.......home foreclosures never seen in american history????hehehehe,and BO is the best....LMAO..."

You do realize that this economy is a result of 30 years of Reaganomics, with the last 8 years actually proving to be the worst of it. Obama inherited the mess, but Repugs created it. The unemployment rate was in free fall when Bush left office. At least it has stopped increasing and is showing signs of slight improvement since. The Dow is up 4500 points since Obama took over. Phil Gramm's (R-of course!) Gramm-Bliley Act set the stage for the subprime meltdown, another problem with the lax regulation Repugs favor. That's what is so funny about the last election when the voters cut off their noses to spite their faces by putting the same "just say NO and I have NO ideas" Repugs back into Congress who created the mess in the first place. The rest of the world laughs at the ignorance and low IQ of US voters, and they are right.
BTW, you do watch Fox "News" exclusively? You seem to prove the recent U of Maryland study that shows Fox viewers are the most misinformed news viewers in the country.

January 04 2011 at 11:40 PM Report abuse -1 rate up rate down Reply
1 reply to Cobra's comment
Trevor

"The rest of the world laughs at the ignorance and low IQ of US voters, and they are right." As their poster child, you should know.

January 05 2011 at 12:46 AM Report abuse +2 rate up rate down Reply
cpaul8

An article about the stock market and whether or not the current rally will continue or a pullback is in line. Funny this is that there is not one comment directly related to the article. All you morons are doing is complaining like little school girls back and forth about Obama and Bush. When will the citizens in this country wake up and realize that they are all crooks and it's just a money game. Greed and power are what control them. Get what's yours in life and stop wasting what precious time you have on Earth while they just get fatter.

January 04 2011 at 11:34 PM Report abuse +1 rate up rate down Reply
simpsongrsm

Markets to not go in a straight line forever - is due for a major correction, in the 10% range, maybe more. Country has added 1 Trillion debt in just 6 months,now 14 Trillion and counting. All this debt is unsustainable - bankruptcy inevitable unless drastic action is taken. Cradel to Grave mentality has to give way to common sense - Socialism and Wealth Re-distribution are all factors leading to the destruction of our economic system. None of this is "rocket science" - govt. is out of control - both parties responsible but Democrats are by far - the worst!

January 04 2011 at 9:43 PM Report abuse +1 rate up rate down Reply
savemycountry911

The only ones who still support the Socialist in the White House want something for nothing. Welfare bums, bailout bums, those who want a car or house for free. The taxpayer can't afford you bums.

January 04 2011 at 9:38 PM Report abuse +1 rate up rate down Reply
MANOOG

Facebook is for needy weirdows who need to be loved by all their fake friends. Get a life and do something real, not with words that have no feeling. Use a dam phone!

January 04 2011 at 9:00 PM Report abuse rate up rate down Reply