Wall Street May Be Getting Ahead Of Itself

By JONATHAN FAHEY

NEW YORK (AP) ⿿ The stock market may have packed much of its fun for the year into one exhilarating January.

The market charged to its best start in decades even though the U.S. economy and corporate profits haven't broken out of a three-year pattern of slow, steady improvement despite record-low interest rates and billions of dollars of stimulus and tax cuts.

This steady growth will likely make for a good year for stocks, but January may account for much of the year's rise, analysts think.

"We thought this was going to be a good year for equities, we just didn't think we'd get it all in the first month," says Barry Knapp, head of U.S. equity strategy at Barclays Capital. "I'd love for the market to keep going up but when I look forward I see a lot of headwinds."

Corporate earnings growth is expected to slow dramatically early this year. Higher taxes will probably crimp people's spending. The relief after the fiscal cliff was averted will likely turn to anxiety as Congress bickers over a package of spending cuts. Job growth is steady, but unemployment has ticked up to 7.9 percent.

Adding to those worries is the economy's unexpected retreat in the fourth quarter. The slowdown resulted from one-time factors like lower defense spending, but it shows how vulnerable the economy is to government spending cuts and political fights.

"There's much more downside risk," says Doug Cote, chief market strategist at ING Investment Management. "Right now there's momentum behind the market and it seems to ignore bad news."

Markets surged as soon as the calendar turned to 2013 and kept rising for much of the month, pushing the Dow Jones industrial average to within a whisper of a record and pushing the S&P 500 past 1,500 for the first time in 5 years. The Dow logged its best start to the year in almost two decades. The Standard & Poor's 500 finished the month 5 percent higher, its best start to the year since 1997.

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