“And the last shall be first. As this bull market nears its first birthday, its defining characteristic is that bad stocks are great,” writes Floyd Norris in today’s New York Times.

“A money manager with the foresight a year ago to buy only companies of dubious financial standing would now be a star. Consider Standard & Poor’s stock ratings, based on 10-year records of earnings and dividends. So far this year, reports Howard Silverblatt of S.& P., stocks rated A are up about half as much as stocks rated B. And stocks rated C — a category that indicates doubtful financial condition but excludes companies that have actually defaulted on their obligations — have done twice as well as the B companies.”

“Pick your indicator, and the kind of stock that conservative investors applaud has lagged behind. Within the Standard & Poor’s 500, notes Steve Galbraith of Morgan Stanley, companies that report the cost of options as an expense have underperformed. He reports that companies with ‘ludicrous pension assumptions,’ high leverage and low profitability have done quite well. Low-price stocks have doubled, while other shares trail behind.”

“Some rally in beaten-down stocks was to be expected after the market hit bottom last October, but the move has been surprising in both its duration and extent.”

“Most people seem to think the party is here to stay. Philip J. Roth, the chief technical analyst at Miller Tabak & Company, reports that the latest Consensus Inc. survey of stock index futures traders shows 67 percent are bullish. ‘That is,’ he reports, ‘higher than it was going into the 2000 top.’ As for market newsletter writers, ‘you have to go back to the first quarter of 1987’ to find bears as scarce as they are now.”

“Mr. Roth also notes that we now have bulletin- board stocks trading more than a billion shares a day: ‘This is the stuff of tops.’ “

“No one focusing on the actual economy has any trouble differentiating the fall of 2003 from the spring of 2000, of course. Then the economy and the dollar were strong and the government expected huge budget surpluses.”

“A year ago, when sentiment was overwhelmingly negative, this column suggested that it seemed like late 1974, and that the stock market was poised to rise rapidly. It has done so, but the rallies of 1975 and 2003 are dissimilar.”

“In the 1975 recovery, quality stocks more than held their own, and in retrospect it became clear that the advance signaled that the economic worries of the era were overdone, and that the economy was going to recover — albeit in fits and starts and with more recessions to come.”

“The market recovery this year has also been seen by some as presaging an early economic recovery, but this week’s declines show some investors are growing nervous.”

“There is a whiff of 1987 in more than the buoyant sentiment numbers. Then, as now, there was international economic discord. The dollar was weak and the Treasury secretary was complaining about foreign economic policies that he saw as harmful to the world economy. (The target then was Germany; now it is China.) France and Germany are flouting European rules on budget deficits. The trade talks in Cancún, Mexico, broke down with both rich and poor countries complaining of unfair treatment.”