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updated 3/10/2004 7:01:30 PM ET 2004-03-11T00:01:30

On Thursday, Wall Street will be marking the one-year anniversary of the stock market’s latest rally, which started in mid-March, 2003. But don't expect traders to break out the champagne and confetti. Twelve months after touching its 2003 low, the market's impressive rally is starting to look a little weary.

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In truth, most market technicians would peg the start of the stock market’s ascent from the depths of a three-year bear market five months earlier.

On Oct. 9, 2002, the broad market, as measured by the Standard & Poor’s 500-stock index, sank to a six-year low of 776.76. Stocks wavered over the next few months, then took off after March 11, 2003, six days before President Bush gave Saddam Hussein 48 hours to leave Iraq.

Since then, investors have navigated the war in Iraq, weak employment and a rash of mutual fund trading abuses, and yet have pushed the market to its highest level in two years, driven by signs of a reviving economy. In December, the Dow Jones industrial average moved above the emotionally key 10,000 level for the first time in nearly 19 months.

Over the past year the S&P 500 is up 42 percent, and the Nasdaq Composite index is up 57 percent. But in recent weeks, the indices have wavered.

The S&P 500 finished February with a monthly gain of just 14 points, or about 1 percent. Other indices have struggled lately. The Dow has hovered around the 10,600 level, while the technology-focused Nasdaq Composite index has fared worse, recording six straight weeks of declines.

Despite the strongest earnings season in 10 years, evidence of continued economic strength and interest rates at four-decade lows, stocks are stalled at their current lofty levels, and some strategists are asking whether this is the pause that refreshes or the start of something more problematic.

Few are predicting a sharp sell-off. After all, investors continue to drive money into stock mutual funds at record rates, and most strategists think the current rally has at least a few more months of gains left to go. But with the jobs picture still cloudy and investor confidence wobbly, some are asking whether the best of the market’s rally is already done.

“The general consensus on Wall Street right now is that in the near term, things look good, but longer-term there we have some things to worry about,” said Peter Dunay, chief market strategist at New York-based brokerage Wall Street Access.

One of Wall Street’s primary concerns is the weak labor market, Dunay said, as evidenced by last Friday’s gloomy jobs report, which showed job growth was surprisingly weak in February, falling far short of the 125,000 economists expected.

The lack of job growth will boost corporate profits in the near term, because firms can keep hiring costs down and continue to grow earnings, Dunay said. But if hiring remains weak and consumer debt levels increase, consumers spending will start to suffer, he added, which could potentially weaken stock prices.

“There’s no way can see go on seeing low payroll data without consumer spending suffering,” Dunay noted.

Another area of concern is the technology sector. The Nasdaq Composite, which hit an all time peak four years ago when it rose to 5,048.62, has been a leader over the past year but is now stuck around the 2,000 level.

Although the Nasdaq is far below its peak level of March 2000, most stock market observers still think valuations in the technology sector look too high. Money is starting to come out of riskier technology names and is moving into safer, blue-chip stocks, they say.

“People are saying if I’m going to be in equities, let me be in the more secure names,” said Dunay. “People aren’t turning pessimistic, but they’re getting cautious.”

Hugh Johnson, chief investment officer at First Albany, thinks stocks have further to climb, but says money is being moved out of low-priced, growth stocks, such as technology issues, and into bigger-capitalization, blue-chip names.

Johnson also expects to see a rise is U.S. exports this year, fueled by the declining dollar, which gives investors more reason to invest in bigger-name stocks that can benefit from exports.

Instead of technology issues, which led the market’s rise to date, the new market leaders are likely to be stocks in the financial services sector, consumer staples and basic material stocks, according to Johnson. He favors names like consumer products firm Colgate-Palmolive and insurer American International Group.

“This is not a time to get out of stocks, because we’ve still got a long way to go in this bull market,” Johnson told CNBC. “The returns in the second year of a bull market are usually lower than in the first, so we just have to be patient. The returns are going to be harder to come by.”

Indeed, some market strategists like Morgan Stanley’s Byron Wien see Wall Street’s recent funk as more of an orderly consolidation after a huge run-up than the beginning of a major decline in stock prices.

Wien has identified a number of “serious dangers” lurking ahead that may lead to a much-anticipated correction in stock prices, including overly bullish investor sentiment, a "disconcerting" pickup in merger-and-acquisition activity and the beginnings of a shift into larger-cap stocks.

Wien also thinks a stock market correction, which is likely to cost the broader market about 5 percent of its value, probably will be followed by another climb to new highs. “I still strongly believe 2004 will be another good year for equity investors,” Wien wrote in a recent note to investors.

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