This Rally Still Has Plenty of Room to Run

Most sectors of the stock market have participated in this rally; only 19 times since 1929 have the Dow industrial, utility and transportation averages hit simultaneous record highs, as they did Feb. 14.

Not All the News Is Good

All that good news is enough to make any investor nervous. If you want to worry, you can -- if you must -- find things to worry about:

• Earnings growth, which has been above 10% for most of this rally, is slowing. It looks like earnings growth on the stocks in the Standard & Poor's 500 Index will come in just below 10% for the December 2006 quarter, and Wall Street analysts are projecting just 5% growth for the first quarter of 2007.
• Economic growth is strong enough that an interest rate cut by the Federal Reserve -- which would help push stock prices higher -- doesn't seem to be in the cards for 2007.
• The housing market is still in a slump, and although inventories of unsold homes continued to decline in December 2006 from a high of 7.2 months of supply, recent inventory levels of 5.9 months of supply are still well above the 4-to-4.5-month range that marks a healthy home market.
• Low oil prices, which have helped increase profits in industries such as airlines and have given consumers more spending power, could come to an end when the peak summer driving season arrives with its big surge in demand for gasoline.
• And, of course, stocks aren't cheap, with the S&P 500 trading at roughly its average long-term price-to-earnings ratio.

These worries are absolutely real, and that is why I'm cautious. If I can't find bargains right now, I'd be perfectly comfortable selling into this rally whenever a stock hits my target price. I'd certainly like to have some cash on hand as we head into the second half of the year.