Happy Days for Investors with a String of Record Highs

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It was just a month ago that stock investors, analysts and yes, reporters, were wringing our hands, worried that the big market decline many of us have been anticipating had finally arrived. Now, it's "happy days are here again" on Wall Street.

The S&P 500 (^GPSC), often considered the best gauge of the overall market, closed at record highs for five straight sessions. Had it managed a sixth in a row Wednesday, it would have represented the longest streak for the index since 1997, when the market was in the midst of its best bull run of all time.

Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, says the market is now up 10.4 percent so far this year (more than 12 percent if you include reinvested dividends). If those gains hold, it would mark the third straight year of double-digit gains. The S&P jumped 29.6 percent last year and rose 13.4 percent in 2012. The current bull market is more than 5 years old, which is a little long in the tooth, but not unprecedented. In addition, the S&P has not suffered a correction -- a drop of at least 10 percent from the recent cyclical high -- since October of 2011.

What Do These Numbers Mean?

So, when you add that up, is it a signal to buy now, or a flashing yellow light for caution? Many market pros like to ride the wave and take advantage of the strong momentum. Silverblatt says there are lots of positive underlying trends as well. "We've been seeing broad gains. It's not a top-heavy situation like the late '90s" when Internet companies with no earnings led the dot-com bubble to burst in 2000. He also notes that the recently completed third quarter is likely to produce record results for corporate earnings, dividend payments and stock buybacks -- all considered bullish signs for the market.

Others are still worried about the fairly sluggish growth of the economy and the Federal Reserve's continued manipulation of interest rates. The widespread expectation is that interest rates will start to move higher next year, but that was also the sentiment a year ago, and interest rates continued to fall to record lows this year.

The most immediate threat to the run or record highs on Wall Street could be retail earnings, which are coming out this week and next. Macy's (M) reported solid earnings on Wednesday, but warned that results for the next six months would fall short of expectations. Walmart (WMT) is due to report its quarterly results before the opening bell on Thursday.

Could the Trend Continue?

Robert Pavlik, chief market strategist at Banyan Partners, says he's not concerned about the day-to-day moves of the market, but believes the longer term trend remains positive. "Looking out to 2015 and 2016, this market still looks cheap. There are many reasons to stay in, to continue to invest." He forecasts another 12 percent to 14 percent market gain next year. Pavlik says the economic data on manufacturing, energy prices, the service sector and more continue to show expansion and are not likely to slow down any time soon.

While most signs to point towards continued gains, the S&P 500 streak itself offers a cautionary warning if it continues through the end of the week. That would mean eight straight record high. The only time that has happened was in 1929, and we all know, that did not end well.
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