SAN FRANCISCO -- Stocks fell for a second straight session Wednesday, but that's not too surprising, given the huge gains produced by major averages since Sept. 21.

In fact, traders' desire to book profits and/or limit their exposure ahead of a long holiday weekend is a perfectly natural and healthy development, according to many observers.

Whatever the merits of that argument, the fact it's so widely believed speaks to how confidence is rising (repeat: confidence is rising) among many Wall Street professionals, as reviewed

Tuesday morning. The interesting counterpoint to this is how skeptical retail investors remain, at least on the surface.

Further evidence of this trend comes from Edward Kerschner, global strategist at UBS Warburg, who this week upped his estimates for

S&P 500

operating earnings for 2002 to $51 per share from $48.

Clearly, this isn't a bearish strategist doing an about-face but a bullish one getting more emboldened. At 87%, Kerschner has the most aggressive recommended equity allocation of the so-called major strategists, and he maintains a rosy 2002 year-end target of 1570 for the

S&P 500

.

Conversely, William Dudley, director of U.S. economic research at Goldman Sachs, is among the more skeptical observers in his peer group. Dudley's forecast of a 0.2% decline in U.S.

gross domestic product next year is far below the average forecast for a 1.1% rise, according to Blue Chip Consensus.

But recent developments have forced the economist to at least re-examine what would cause him to change his mind, including:

A significant abatement in labor market deterioration. (Wednesday, the government reported that initial jobless claims fell 15,000 for the week ended Nov. 17, the fourth straight week of declining claims. Meanwhile, continuing claims fell for the first time in nine weeks.)

A steady-to-rising trend in real consumer spending into early 2002. (To be determined, but the University of Michigan reported Wednesday that its consumer sentiment index rose for a second straight month in November.)

A large additional surge in stock prices. (To be determined.)

Signs of a bottoming out in manufacturing. (Same, although the uptick in the index of leading economic indicators reported Tuesday is a start.)

A return of oil prices to 1998 lows. (Crude futures dipped to $18.90 a barrel Wednesday as hopes faded that Russia will join other non-OPEC nations in cutting production.

)

Significant, tangible good news on the war front. (We've had that, for sure.)

Indications that policy easing is helping foreign economies.

Though many of those criteria remain unfulfilled, it says something about the state of psychology that Dudley felt compelled to publish a report about what could go right.

That said, it's time to look at the other half of the story -- the psychology of retail investors.

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