Market Rally Still Has Legs

"Thanks to new tax laws, we expect dividends are going to increase by about 10% next year and envision corporate earnings up 8% to 9% -- that would support stock price gains in the same 8% to 10% area," said Eaton Vance's Mach. "There will be parts of the market that do better and some that do worse."

Like Wilcox, Mach and others are turning their attention to the energy sector. As Merrill Lynch's Chief Quantitative Strategist Rich Bernstein noted recently, the sector has posted spectacular earnings, up 91% for the third quarter, but the stocks have lagged this year -- up only 11.3% through Dec. 5.

While energy was mentioned by Wilcox, Mach, Devoe and others as a smart bet for 2004, the unifying theme among bulls was a return to quality. T. Rowe Price's Smith cites companies such as AIG(AIG Quote), Citigroup(C Quote) and UnitedHealth(UNH Quote) -- "companies the market is now pricing at a discount" -- as strong performers for 2004.

While Smith expects many of 2003's go-go tech stocks may wither, that doesn't mean the Nasdaq Composite will collapse. "A lot of those highfliers might fall to earth, but if Microsoft(MSFT Quote), which has been flat this year, gains 25% next year, it will all even out." Microsoft is Smith's second-largest holding.

The bears, meanwhile, cite a laundry list of potential problems on the horizon -- soaring consumer and federal debt, a Federal Reserve that is almost out of stimulus ammunition, concerns about the negative implications of a weaker dollar. However, they also recognize the validity of the old adage: You can't fight the Fed. "This won't last -- secular bear-market rallies just don't last that long -- but the Fed continues to print money, so the market is up," said Hickey of the High-Tech Strategist newsletter. "It's all temporary stimulus -- tax rebates, 1% interest rates, massive increases in the money supply."

Hickey frets that while tech stocks aren't as expensive as they were in 1999, the overall market is. And if the tech sector collapses, the market's rise in 2003 doesn't allow many places to hide. Likewise, Devoe cautions that liquidity-driven rallies don't stand up to stress tests exceptionally well, saying "liquidity is a coward at the first sign of danger."

In the meantime, many say the biggest potential danger for 2004 is inflation -- a far cry from the days of deflation a little more than a year ago. Banerji, whose firm correctly predicted the recession of 2000 and the recovery, said the "inflation outlook is relatively benign for now," adding, "the day of reckoning is not yet upon us."

	1.	Sound, Fury but No Inflation
	2.	Market Rally Still Has Legs
	3.	Asset Allocation Done Right
	4.	The Five Biggest Scandals of 2003