Liz Ann Sonders, Charles Schwab's chief investment strategist, said the last time she received this many calls for appearances from non-financial news television stations was in May -- the last time the

Dow Jones Industrial Average

attempted to make a new all-time high. The question is whether Katie Couric and her ilk discussing the Dow marks the end of this spike, or just the beginning.

Highs are magic numbers because they feel like accomplishments, and the media's obsession with them can act as a magnet, sucking people into the vortex of optimism. But the high really matters only if it sticks. The difference between sustainability and a precipitous 180-degree plummet could come down to Mom and Pop. If retail investors are drawn into the larger, cheaper, high-dividend-paying, more global companies, which strategists have been recommending since May (some for much longer), the market may turn the new high into a stepping stone.

"We're seeing the early signs that individuals are coming back," says Jeffrey Kleintop, chief investment strategist at PNC Advisors. "The retail investors typically buy large-cap, household names, which may help sustain this big-cap rally."

The Dow closed up 0.25% at 11,718.45 Thursday, just 4.53 points below its all-time closing high of 17,722.98 made on Jan. 14, 2000. The index briefly traded above that level intraday, but it couldn't cross the finish line. The

S&P 500

closed at another new five-and-a-half-year high, up 0.19% at 1339.15. The

Nasdaq Composite

, which remains eons away from its March 2000 all-time high of 5048.62, gained 0.29% to close at 2270.02 Thursday.

Driving the Dow up Thursday were shares of

General Motors

(GM) - Get Report

, which rose 2.3% on news that billionaire investor Kirk Kerkorian may increase to 10% his current stake in GM in order to push his idea for the automaker to join forces with Nissan and Renault.

Other gainers included

Intel

(INTC) - Get Report

and

Hewlett Packard

(HPQ) - Get Report

, which gained 1.5% even as general counsel Ann Baskins resigned and a House subcommittee held hearings regarding the firm's investigation into leaks by its board members.

While more volatile stocks like GM and Hewlett Packard led Thursday's advance, the more defensive names in the Dow have outperformed on a quarterly basis, including

Pfizer

(PFE) - Get Report

and

McDonalds

(MCD) - Get Report

, although the latter was among the laggards Thursday. On a quarterly basis, more cyclical names like

Caterpillar

(CAT) - Get Report

and

3M

(MMM) - Get Report

have trailed amid more evidence the U.S. economy is slowing. The latest is the Commerce Department's report downward revision to second-quarter gross domestic product to 2.6% from the previously reported 2.9% and the 5.6% first-quarter growth.

Meanwhile, cash flows into U.S. equity mutual funds picked up in September. So far, $3.15 billion has flowed into U.S. equity funds this month, compared with a $3.7 billion outflow in the month of August, according to TrimTabs Investment Research. U.S. equity mutual fund flows have been weak all year, though, compared with the early days of this bull market. Thus far this year, only $28.9 billion has flowed into U.S. equity funds vs. $111.2 billion in 2003 and $129.7 billion in 2004.

"This has been an institutional market for the last few years," says Kleintop, who is bullish on the market for several reasons, including the historical strength of the market between the third quarters of years two and three of a presidential cycle. Based on his conversations with investors, stocks are the best investment option out there, compared with the alternatives, he says.

Bond yields are trending down, and real estate is downright ugly. Some of these investors will reclassify their investments back into these large-cap stocks, which on a price-to-earnings basis, look relatively cheap, he says. The P/E for the Dow is 15.

The shift into large-cap stocks makes sense given that riskier, growth-oriented small cap stocks led the market for the past six years as accommodative monetary policy fueled the economic expansion. "The Dow rally is still starting from a more reasonable valuation point, which gives it room to expand," says Margaret Patel, portfolio manager at Pioneer Investments.

"The traditional discount that investors got for buying small-cap vs. large-cap stocks is gone," agrees Brett Gallagher, head of U.S. equities for Julius Baer Investments, adding that some small-cap names trade at a relative premium to large-cap stocks.

"So to the extent that this rally is shifting people into a cheaper asset class, is good," says Gallagher. Often, individual investors are drawn to the thing that has run the most and is about to correct, i.e., the massive flows into emerging market funds in the first quarter of this year. "The Dow being up on its run, on a relative value basis, is oddly pushing people to do the right thing," he says.

The draw to large-caps is compelling for all investors, not just individuals. The valuations are attractive, the Dow yields 2.2%, and the mega-caps relative safety provides cover from some of the "what ifs" lingering in investors' minds. These "what ifs" include uncertainty about the Fed and interest rates. Investors are unconcerned about inflation now, but one bad consumer price index report could pull the plug on the party and reintroduce the rate-hike question. Higher rates could make the housing correction worse, bringing all the gloomy projections about a consumer-led recession into focus again.

Energy prices could spike again, too. The recent drops in the prices of oil and other energy products are reassuring to consumers and investors, but a geopolitical flare up could reintroduce the idea of $80 oil in no time.

Sonders, and others, see some choppiness ahead, given some lower earnings guidance and the end of quarter-end window dressing. Sonders' recommended in May that investors overweight large-cap stocks in their portfolios. She's sticking to that recommendation, whether she broadcasts it on the CBS Evening News or just

CNBC

.

In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click

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