You know what the talking heads are going to say about the big rally in stocks today. You won't need to turn up the sound on the television or flip open the paper.

They're going to say investors are "looking across the valley," that stocks are "beginning to anticipate a second-half recovery." It doesn't matter that earnings in the current quarter are going to be no damn good; the market is a "discounting mechanism," that prices are based not on what's happening now but on what will happen in the future. Nor would one want to dispute any of this too heavily. Markets really do move based on what investors think will happen in the future. But markets can also get ahead of themselves.

"Anticipating a second-half recovery is all fine and dandy," says

Bollinger Capital Management

head John Bollinger, "but when people get too cocksure about it, it sets up a situation where the market is vulnerable to bad news."


And bad news is something that the market is going to have to deal with. To begin with, although there are signs that the economy may be pulling out of its funk, anything like recovery is still months away. Analysts' current forecasts call for

S&P 500

companies' earnings to decline by 9% from a year ago in the second quarter. Furthermore, economic recovery in the second half is far from a sure thing, and even if it does happen (as most economists expect), it's possible that earnings won't rebound immediately.

Breaking Through
Dow over six months, before today

"I was a buyer several weeks ago," says


chief investment strategist Larry Rice. "I'm a seller now. There's too much optimism. There's just this universal belief that

Greenspan's going to do it."

The optimism could easily get tempered in the weeks to come. As we get closer to the end of the quarter, more earnings warnings will roll in. Any weak economic data -- particularly that suggesting consumers are cutting back on spending -- could test the faith of those who expect a quick return to economic growth. If energy costs continue to run higher, particularly as we head into the summer driving season,

concern that the consumer's dollar will get spent at the gas station, rather than at the store, could emerge.

Why They Call It Wall Street

The return of such jitters would suit Bollinger just fine.

"I hate to be a sap, but the market is supposed to climb a wall of worry," he says. That is something of a cliche, but there is a point to it. The best kind of market occurs during periods of pessimism. Bad news merely confirms the prevailing opinion, while good news, because it is unexpected, sets the market higher. It's exactly the kind of market we've had for the past month or so.

Until today, that is.