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This Rally's Strong Embrace

Close to everything went up in 2003, much by a lot. Can it be repeated?

Just how profound has the turnaround in stocks been this year? Experts say you have to go back to the early years of the Reagan administration to find anything comparable.

At year's end, 454 stocks in the

S&P 500

are poised to end 2003 in the green. Market-watchers say that's one of the best ratios of winners to losers ever posted by a major index.

"We have not seen these numbers in at least 20 years or more," saidHoward Silverblatt, a researcher with Standard & Poor's division ofquantitative services. "It means it's been a broad advance that's not justbeen limited to specific sectors or industries."

Indeed, seven of the 10 industry sectors in the S&P 500 will post gainsof better than 20% this year, with several exceeding 30%. Leading theway were information technology stocks, up 47%, consumer discretionarystocks, up 35%, and materials, also up 35%.

The only dogs were telecommunications services stocks, which rose onaverage 1.8%. Not a single sector of the S&P 500 will close the year in thered.

The three major market indices will post equally strong gains, makingup some of the ground they lost during the three-year bear market. The outright winner was the

Nasdaq Composite

, which soared nearly 51% and will end the year at its highest level since January 2001. Also scoring big was the


industrials, which is set to rise 25% and close the year firmly above the psychologically important 10,000 milestone. The S&P 500, meanwhile, jumped 26%.

Meanwhile, several indices that measure the performance of small- and mid-cap stocks end will end the year near all-time record highs.

And some of the bubble's biggest names had familiar looking gains in 2003, with the likes of



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climbing 128%,



jumping 175%,


(INTC) - Get Intel Corporation Report

soaring 105%, and


(CSCO) - Get Cisco Systems, Inc. Report

rising 84%. Then again, it could be argued, tech stocks that weren't insolvent had no place to go but up in 2003.

To some degree, a rebound in stocks was inevitable following three crushing years for investors. But the past year's rally got an added jolt from a combination of low interest rates, tax cuts and a strengthening economy -- rocket fuel that investors probably can't bank on in 2004.

In fact, many market experts say it's difficult to draw any definitepredictions about the performance of the stock market in 2004 from thepast year's stellar gains. If anything, the consensus is that stocks willpost more modest gains in 2004. Analysts at S&P are looking for a 10% risein the S&P 500 in 2004.

"It was a broad-based, significant rally, but to me it doesn't sayanything about what the future will hold," said Timothy Ghriskey, of Ghriskey Capital Management, a Connecticut hedge fund. "I wouldnot expect any outsized performance next year."

Ghriskey and others said the two main concerns for investors in thecoming year will be the sustainability of the economic recovery and whetherthe

Federal Reserve

switches gears on three years of accommodative rate policy.

One thing that's fairly certain is that the strength in all industry sectors means that 2003 gains were no fluke. The strong across-the-board gains show it probably will take more than one or two sectors to weaken for the market to give back its gains of the past year.

"The breadth is important because it shows the level of participationin the rally," said Silverblatt.

But even with the past year's impressive gains, the stock marketremains a long way from many of its all-time high milestones.

The Nasdaq, even after gaining 51%, remains more than 3,000 pointsbelow its bubble mania high-water mark. Even the 51% gain in the indexlooks puny compared with the irrationally exuberant 86% jump the Nasdaqregistered in 1999.

To get back to their respective tops, the Dow needs to add another 1,300 points and the S&P must rise by another 400.

Even after this year's big gains, many individual investors, especially those who heavily invested in technology stocks during the bubble, remain lighter in the pocket. And while the market rebound has spurred renewed interest in trading stocks, the level of activity remains well below the frenzied pace of early 2000.


Charles Schwab


, the nation's largest online and discount brokerage, investors registered an average of 222,700 trades on a daily basis in November. That's up sharply from the 180,000 trades Schwab customers were making in the dark days of 2001. But Schwab customers have a long way to go to match the fast-fingered action of investors in early 2000. Back then, Schwab customers were logging about 390,000 trades a day.

The major indices likely would have to repeat 2003's performance in 2004 for retail-investor enthusiasm to return anywhere near the pre-bear market level.