Bond Managers Like Stocks

This year marks a major transition at the Fed; Greenspan's departure as Fed chief, the likely end to rate hikes and even the beginning of fed funds rate cuts by 2007.

"With all the uncertainty, people will start second guessing. And that could drive positions very quickly," says Cheah.

"I'll stay close to the benchmark and trade opportunistically within a rolling, one-month view based on employment data," he says, adding that employment figures will set the pace for stocks.

But short-term, tactical asset location doesn't sit well with OppenheimerFunds' Webman, who says that how you allocate should depend on when you need the money and how much money you need, not on guessing the near-term future of stocks, bonds or currency.

"In the short term, it is hard for any of us to outsmart the sum wisdom of everybody else," he says. "And even if there is short-term volatility in interest rates, if you don't need the money for 10 years it doesn't matter as much."

For the excited equity buyers among us, a final caveat:

Conventional wisdom calls for stocks to rally once the FOMC stops raising rates. But this could be a situation where traders should buy in anticipation and sell on the event, writes Richard Suttmeier, chief market strategist for Joseph Stevens & Co., and a contributor to TheStreet.com.

If the economy slows too much, corporate profits would come under pressure, which would stymie huge returns.

And there are plenty of rational reasons why central bankers would keep a foot on the brake, Suttmeier adds, citing housing bubbles, the budget and trade deficits, skyrocketing gold prices and spiking fuel costs.

"If for some reason they go to 5.75% on the fed funds rate, it's a whole different ballgame," agrees Fifth Third Funds' Stapley. "You'd see a sharper slowdown in the economy led by a sharper downturn in the housing market and a much more painful impact on the consumer."

The 30-year Treasury bond would likely rally in such a scenario, "and there would be a nice inversion in the curve," Stapley predicts. "But the only people who would enjoy that would be fixed-income investors hanging out on the long end."