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TheStreet Open House

Fidelity Strategist: Market Used To DC Gridlock

By MARK JEWELL

BOSTON (AP) â¿¿ Has the stock market finally entered a comfort zone?

Consider that the Standard & Poor's 500 index on Friday closed above 1,500 points for the first time since December 2007. Fourth-quarter earnings are mostly coming in strong. Less than four weeks into the year, stocks already are up 5 percent.

Anxiety has eased so much that the Chicago Board of Options Exchange Volatility Index, also known as the VIX, has dropped to its lowest level in nearly six years. Referred to as the market's fear gauge, it reflects expected movement in the S&P 500 over the next 30 days, as measured by options prices.

What's more, investors are finally returning to the market. U.S. stock mutual funds attracted nearly $13 billion in net deposits during the first two weeks of the year. That's an about-face from 2012, when withdrawals exceeded deposits for 24 weeks in a row, ending in late December.

A key reason that investors are back is the Jan. 1 deal between Congress and the White House to avert the so-called "fiscal cliff." Thorny issues remain unresolved, including spending cuts and potential reforms to entitlement programs like Social Security and Medicare. But there's no longer an immediate threat of fiscal disaster.

When stocks are rallying as they are now, investors should exercise caution. The market is up more than 120 percent since early 2009, and the strongest returns may be behind us.

Yet Bruce Herring of Fidelity Investments is confident that the long-term outlook remains bright. As a chief investment officer with Boston-based Fidelity, Herring helps oversee more than $500 billion in stock assets.

Herring explained his belief that stocks offer strong growth potential because investors face far fewer economic and political uncertainties than they did a few years ago. Below are excerpts from an interview, edited for clarity:

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