"A resounding theme for our sector and portfolio strategy is a 'growth barbell,'" Belski writes. He expects to emphasize defensive growth and riskier, aggressive growth at different times during the year. Belski defines defensive growth as consumer staples, financials, health care and industrials. Aggressive growth includes telecom services, information technology and consumer discretionary.

For the time being, he has an overweight rating on a mix of industrials and telecom services, such as Verizon(VZ), Vodafone(VOD) and Mexico's America Movil SA de CV(AMX).

In industrials, Belski suggests avoiding the transportation sector and buying conglomerates such as Emerson Electric(EMR) and 3M(MMM). He has underweight recommendations for energy and utilities and has consumer discretionary, consumer staples, financials, health care and information technology at market weight.

Belski also has a market weight recommendation for information technology, a favorite area of several strategists. He recommends "trading the cyclical swings" in companies such as Altera(ALTR) and Molex (MOLX), while owning tech "franchises" such as Microsoft(MSFT) and Google(GOOG).

Larry Puglia, manager of T. Rowe Price's blue-chip growth fund and U.S. large-cap core growth strategy fund, would stay away from semiconductors and buy the wireless interactive, handheld and multimedia stocks such as Apple(AAPL) or Adobe Systems(ADBE).

Many strategists have taken a balanced growth approach similar to Belski's, betting that the economy chugs along and liquidity persists while protecting against the possibility of rising inflation, a rate hike and/or a recession. But most also expect some volatility and a pullback at some point next year. Prudential's Ed Keon recommends a 10% cash position, as opposed to the aggressive investor's normal zero-cash allocation.

Many strategists are expecting a less robust version of 2006, when the stock market was led by different groups at different times. At the start of the year, cyclicals, energy and small-caps led the way. When the market hit a peak in May and then sold off, many investors were prompted to rotate into more-defensive stocks, including large-caps, consumer staples and health care. But after the market's double bottom in June and July, the rally gathered steam again, on the back of the old small-cap, energy and cyclical leadership.

By the end of the year, investors who expected a correction and missed the late-summer rally started to panic and put their sidelined cash to work. Until the week of Dec. 18, the tide had risen nearly across the board as everything from mega-caps like Microsoft and Exxon Mobil(XOM) to the small-cap Russell 2000 to the typically humdrum, defensive Dow Jones Utility Average made 52-week highs.

"I think it is prudent to give the stock market the benefit of the doubt right now," says Jeffrey Knight, chief investment strategist at Putnam Investments, which has $191 billion under management. "It is hard to see where the imminent vulnerabilities [are] today, but that doesn't mean they don't exist."

The biggest threats to the stock market are a liquidity crunch and a slip into recession, and "traditional diversification may be inadequate or less powerful than in past cycles to protect against a downturn," Knight says. "But it is hard to intellectually make your scary scenarios your central case."

Knight says he's investing more capital on so-called alpha strategies to augment returns, meaning his funds are taking more risk in stock selection and currency overlays -- "things that don't depend on the stock market just going up." Some of Knight's fund managers are using strategies such as the carry trade, borrowing low-yielding currencies to invest in higher-yielding assets, and other ideas typically associated with hedge funds.

Central to many strategists' belief in next year's returns is the bet, once again, that multiples are set to expand. Of all the asset classes that have benefited from the rising tide this year, the U.S. stock market remains the most undervalued, says Margaret Patel, portfolio strategist at Pioneer Investment, which has $6 billion in assets under management.

Risk premiums have reached peaks for many fixed-income investments, though. The average spread between yields on speculative-grade bonds, or junk bonds, and low-risk Treasuries, has hovered around 300 basis points. Spreads haven't crossed below that level since February 2005, and the historic low was 240 basis points in 1997.

The earnings yield of the S&P 500 -- the inverse of its price-to-earnings ratio -- is currently 6.02% based on the $85.14 a share in projected earnings for 2006 of all the companies in the S&P 500 Index and 6.39% based on estimated 2007 earnings of $90.38, according to Zacks. That compares very favorably to the yield on the 10-year Treasury, currently at 4.55%.

Indeed, Patel believes stocks are cheap relative to Treasuries and suggests buying growth sectors, including industrials, basic materials and utilities. Patel says health care is attractive as well and poised to grow, even though it is typically filed under the defensive category. She believes the durability of this year's stock market was due in part to investors' recognizing this value in equities amid relatively friendly economic conditions.

If investors become even less nervous about recession in 2007, their risk appetite for stocks may finally catch up to the risk appetite in fixed-income assets, leading to the long-awaited, much-elusive multiple expansion -- something almost everyone agrees would be very bullish for stocks.