updated 6/7/2009 2:33:02 PM ET 2009-06-07T18:33:02

Three months can feel like a long time on Wall Street.

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In the stock market, where news about companies and the economy dictate buy and sell decisions in a matter seconds, the market's powerful rally is getting pretty old to some experienced players.

Traders have been laying down bets on modest signs that the economy is halting its slide. That optimism has lifted the Standard & Poor's 500 index, a benchmark for many investments like mutual funds, an enormous 39 percent from a 12-year low on March 9. Those kinds of gains might normally take four years to materialize.

Some analysts are asking whether ebullient investors have been too quick to shed their caution. Another round of economic data this week could help determine whether the gains will hold.

"Are we getting ahead of ourselves in terms of market levels? I believe that we are and I think investors would be wise to take some profits off the table," said Walter Gerasimowicz, chairman and chief executive of Meditron Asset Management.

The rally has added 2,220 points the Dow Jones industrial average to put it within a dozen points of being flat for the year. But the Dow is still down 5,400 points from its high of 14,164.53 in October 2007.

Green arrows began popping up on stock screens three months ago this week as traders determined that the economy was likely to sidestep a ruinous fall marked by the Great Depression and instead muddle through the worst recession in decades.

But some analysts contend that investors are in danger of setting expectations too high for how quickly the economy can recover from the recession that started in December 2007.

"When the predictions become less dour I think that introduces the possibly of disappointment," said Jeff Knight, head of asset allocation at Putnam Investments. "You don't have any evidence yet that things have actually gotten any better."

Even if the worst is over for the economy, investors are still staring at a long list of worries. Housing remains in a funk and unemployment sits at a 26-year high. The government said Friday that employers shed 345,000 jobs last month, the fewest since September. But unemployment is still a high 9.4 percent after four straight months of slowing layoffs.

Even brightening prospects for the economy could trip up the markets. Besides risking overconfidence, investors are helping push interest rates higher. They're selling off Treasurys, no longer in need of the safety of government debt, and that in turn forces up rates on mortgages and other kinds of loans for consumers.

"Where do you go from here? I think it's dangerous to take a strong view one way or the other at the moment," Knight said.

Analysts say that even if the economy begins to grow, it likely will take some time before consumers hit by lost jobs, lower home values and tighter access to credit start spending more.

On Thursday, the Commerce Department releases its May retail sales report. Retailers last week reported mixed results but some analysts were surprised that more shoppers hadn't returned to stores.

Gerasimowicz contends consumers, whose spending accounts for more than two-thirds of U.S. economic activity, could hold back the economy's recovery if they continue to hunker down.

"The consumer has to be out there," Gerasimowicz said.

The Federal Reserve reported last week that consumer borrowing in April fell by twice as much as analysts had been expecting.

Investors also expect to focus this week on the Fed's Beige Book, which provides readings on the U.S. economy by region. The report is due Wednesday and arrives two weeks before policymakers' next meeting.

The Commerce Department on Tuesday is expected to release wholesale trade inventories for April. On Wednesday, the agency reports on the nation's trade balance.

On Thursday, the Commerce Department reports on April business inventories and on Friday, the Reuters/University of Michigan issues its first reading on consumer sentiment for June.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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