Market Rally Still Has Legs

Bulls and bears disagree on why markets were so rosy in 2003. And while they differ on the relative health of the market, they draw surprisingly similar conclusions about the market outlook for 2004 -- things are looking up.

Bullish participants say the rally that lifted the S&P 500 22.1% through Dec. 12 was the genuine return of a new bull market, fueled by strong economic underpinnings and a revival in earnings growth. Bears say the past year's gains represent an impressive bear-market rally sparked by one of the most overwhelming stimulus programs in economic history.

Despite the disagreement, many on both sides feel the market rally will be sustained for much of 2004, probably at a less vigorous pace, and led not by speculative tech stocks but by higher-quality companies and this year's laggards, especially energy companies. Meanwhile, many bulls and bears also feel that outside an event such as a major terrorist attack, inflation may loom as the biggest threat to the market and the economy -- but most feel it will be kept in check, for this year at least. ...