Monday's session notched further degradation of the skeptics' arsenal, as a combination of fundamental factors helped push major averages to new closing highs for the cycle.

One by one, bearish concerns have fallen by the wayside in the past 13 months, whether they're about the invasion of Iraq, the threat of dollar weakness, valuations, the economy's tepidity and rising unemployment, or burdensome debt across U.S. society.

More recently, scandals at the

Big Board

, and ongoing revelations of mutual fund misdeeds have failed to undermine the advance, much to the skeptics' chagrin. Monday's gains eradicated arguments about the averages' recent inability to reach new highs.

The

Dow Jones Industrial Average

rose 0.6% to 9858.46, surpassing its Oct. 15 intraday high of 9850. The

S&P 500

gained 0.8% to 1059.01, besting its Oct. 15 intraday high of 1053.72, after struggling to do so numerous times

last week . The closes are the highest for both the Dow and S&P since May 31, 2002.

Meanwhile, the

Nasdaq Composite

surpassed its mid-October intraday high of 1966.87, rising 1.8% to 1967.70, its best finish since Jan. 17, 2002.

In

NYSE

trading, 1.35 billion shares changed hands while more than 2 billion shares traded over the counter; advancers led by better than 2 to 1 in both venues. New 52-week highs dominated new lows 525 to zero (yes, a shutout) in Big Board trading and by 508 to 12 in Nasdaq action.

The absence of a huge volume surge and weakness in the final hour of trading were glitches in Monday's technical breakout.

Still, this latest batch of 52-week highs seriously undermines analogies between chart patterns of major U.S. markets and Japan's postbubble Nikkei, a recent favorite scenario of the bearish set. If Monday proves a top for the S&P and Nasdaq, and they decline sharply hereafter, one could argue the

Nikkei analogy has been sustained, albeit with the timing slightly askew. But, for now, the trends have diverged.

More importantly, Monday's advance came amid more evidence of positive fundamental developments.

Prior to the market's open, the Semiconductor Industry Association reported global chip sales totaled $14.4 billion in September, up 6.5% from August, their biggest monthly rise since 1990. Sales rose 17% from a year earlier and were up 18% the third quarter. The SIA data are unlikely to convince bears semiconductor stocks aren't wildly overvalued, but it did threaten arguments the recovery in tech spending has been a mirage.

The data helped send the Philadelphia Stock Exchange Semiconductor Index up 3.9% to a 52-week high of 515.77. Notable gainers among SOX components included

Applied Materials

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,

Novellus Systems

(NVLS)

,

Teradyne

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,

National Semiconductor

(NSM)

and

Altera

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; each gained at least 5%.

Further aiding stock proxies was better-than-expected earnings reports from, among others,

Kellogg's

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and

Teva Pharmaceutical

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, as did takeover activity involving

Sovereign Bancorp

(SOV)

, which rose 9.9%, and a merger agreement between

Conexant Systems

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and

GlobespanVirata

(GSPN)

.

In economic news, the Institute for Supply Management's manufacturing index rose to 57, its highest since January 2000, and well ahead of analysts' expectation of 55.9 following September's reading of 53.7. Additionally, the new orders and production components rose sharply while inventories remained low, encouraging optimism about the outlook for the beleaguered manufacturing sector.

Separately, the government said construction spending rose 1.3% in September vs. forecasts of a 0.4% increase. August's increase was revised to 0.7% from just 0.2% originally.

The data poured salt in the wounds suffered by the economy's skeptics after last Thursday's blockbuster GDP report. Conversely, the reports provided optimists an opportunity to upwardly revise estimates.

Thomas McManus, equity portfolio strategist at Banc of America Securities, did just that Monday, raising his S&P earnings estimates to $57 per share from $55 for 2003 and to $62 from $60 for 2004. (Consensus estimates are $52.98 for 2003 and $58.50 for 2004, according to First Call.)

Higher earning estimates enable bulls such as McManus to justify maintaining an upbeat view following the market's heady gains. The strategist maintains a recommended allocation of 75% equities, 15% fixed income and 10% cash.

Hoping for the Worst

Barring geopolitical developments -- and rising U.S. casualties in Iraq obviously didn't unnerve traders Monday -- naysayers can pin their hopes on the market being technically overextended.

Don Hays, the oft-bullish founder of Hays Advisory Group, cited the McClellan oscillator approaching overbought as one reason to expect a near-term correction. Additionally, he noted "subtle changes ... denoting a slightly more defensive nature" of trading. These included a recent stall among big-cap biotech stocks and relative strength in trends of NYSE volume vs. the over-the-counter variety. The Amex Biotech Index was a notable laggard Monday, falling 0.4%.

"But the bottom line is the bull market is still alive and well and I'll remain bullish until the message from monetary, psychology and valuation turn decidedly weaker than today's very bullish levels," he concluded.

Fundamentally, the best skeptics can hope for is a much stronger-than-expected unemployment report on Friday. That sounds counterintuitive, but such news may prompt further concern the

Federal Reserve

may have to abandon its

latest pledge to keep monetary policy highly accommodative.

"For investors and businessmen, the balance of risks are clearly toward growth with rising inflation," commented Wachovia Securities chief economist John Silvia, who noted the prices paid index of the ISM report rose to 58.5 and has been above 50 since March. "Contrary to conventional wisdom

and the Fed's position there is no balance of risks: We have growth and rising prices. Risks are unbalanced."

Similarly, Bianco Research in Chicago noted inflation expectations in 10-year Treasury Inflation Protected Securities (TIPS) have been "moving higher in vertical fashion" even as crude prices have recently fallen. On Monday, crude futures fell 0.7% to $28.90 per barrel.

"If energy is not the influence on inflation, what is?," Bianco mused. "We believe it's the market's perception of an overly accommodative Fed."

Reflecting such concerns and in reaction to the day's data, the price of the benchmark 10-year Treasury fell 16/32 to 99 4/32, its yield rising to 4.36%. The 30-year bond fell 22/32, its yield rising to 5.18%.

The dollar, conversely, continued its recent rally, rising to 111.17 yen from 109.94 late Friday while the euro slid to $1.1450 from $1.1584. The Dollar Index rose 1.2% to 93.68. Gold futures slid nearly 2% to $377.10 per ounce.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.