Feb. 8, 2012 at 3:04 PM ET
With the Dow Jones industrial average flirting with 13,000 -- a level not seen since May 2008 -- even "Dr. Doom" is stepping back from the ledge.
“We’re a believer; we’re celebrating," said Gina Sanchez, director of equity and allocation strategy for Nouriel Roubini, the New York University economist, dubbed “Dr. Doom” for his many pessimistic forecasts about the global economy.
"We think the rally has legs,” Sanchez told CNBC.
Many investors appear to feel the same way.
The widely followed index of 30 blue-chip stocks has defied forecasters to surge more than 5 percent since year-end, including the best January since 1997. The Dow has retraced over 80 percent of its bear market slide from 2007 to early 2009, Reuters reports, and is just about 10 percent away from its all-time high hit in October 2007.
“13,000 is not just a number; it’s a psychological trigger that could cause the market to drop or bring more buyers in to drive it higher,” said David Bach, a personal finance expert and author.
Bach points to data that show the broad Standard & Poor’s 500 index, is up 23 percent from its October low.
“That’s a startling run,” Bach said. “There’s a good chance that the average person’s retirement portfolio is up at least 10 percent. But many retail investors have probably missed out on this rally because they have been putting money in safe investments like Treasury bonds, municipal bonds and corporate bonds over the past several months.”
Bach expects the rally in equities to continue, noting that corporate earnings are improving, payrolls are growing and American consumers, who have spent the past three years paying down debt, are feeling confident about borrowing and spending again. He also points to "frugal fatigue," saying consumers are ready to start spending a bit more freely again after being changing their habits in the aftermath of the Great Recession.
“People have had their heads down in this bad economy over the past few years, and now they’re coming back up for air,” he said. “That means they’re spending money again, and we see that in such metrics as growing car purchases and retail spending numbers.”
Hugh Johnson, chief investment officer of Hugh Johnson Advisors in Albany, N.Y., notes that a number of indicators are coming together and driving stocks higher.
There are signs that the sovereign default problems in Europe may be abating, and investors, buoyed by improving data on the U.S. economy, are buying up economically sensitive stocks in sectors such as technology and finance, and also small- and mid-cap stocks, he said.
“All the signs are pointing to investors taking on more risk. Why? Because the economic numbers are improving, and that’s the story here. The markets and the economic numbers are moving in sync, and that’s encouraging,” Johnson said.
Jim Paulsen, chief investment strategist at Wells Capital Management, is also bullish about the outlook for the market. Appearing on CNBC Wednesday, he pointed to a steady growth in bank loans, a sustained rise in employment and early indications of a recovery in the housing market.
“I think we might he on the front end of sustained upward move in confidence in this country, and confidence sustains valuations.” Paulsen said.
However, other market analysts expressed caution. Brian Kelly, Shelter Harbor Capital co- founder, said that, since the stock market is up over 20 percent from its low, this is not a time to buying stocks “hand over fist.”
“Buy stocks on a pullback, but be cautious here,” he said on CNBC. “There are things that can always surprise us on the negative side.”
Indeed, even Roubini’s bullishness on the market is short-lived.
His company thinks markets will be buoyed by central bank policies to keep rates low over the next few months, which will lead investors to buy stocks. But in the second half of the year the rally could fade. “We expect to end the year lower from where the market is now,” Sanchez told CNBC.
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