“Stocks have risen feverishly in the past few weeks, as a steady stream of positive news about the U.S. economy has lured buyers back into the market. The latest data indicate that the economy grew by 1.4% in last year’s fourth quarter, while productivity surged by 5.2%. In January, moreover, the nation’s manufacturers increased their output, contrary to expectations,” writes Jacqueline Doherty in this week’s Barron’s Magazine.

“This spurt of activity seems bound to translate into higher corporate profits, says Tim Hayes, global equity strategist at Ned Davis Research in Venice, Florida. In fact, industry analysts predict that earnings for the companies in the S&P 500 will rise by 17% this year, and by 20% in 2003, after declining sharply in each of the past two years. Little wonder, then, the major stock indexes have awakened from their own two-year slumber, punctuated by the nightmare of September 11.”

“Since the markets bottomed following that day’s terrorist attacks in Manhattan and Washington, the Dow Jones Industrial Average has risen 28%, to 10,573. The S&P 500 has climbed 21%, to 1164, and the Nasdaq has rallied 36%, to 1930. Most of those gains came in last year’s fourth quarter, but recent weeks, as noted, have brought a resurgence of the animal spirits. Consequently the Dow is up 5% this year, and the S&P almost 1.5%, with the Nasdaq bidding to move into the black.”

“The change in sentiment, not to mention prices, has been a welcome relief for individual and professional investors, and an invitation to market seers to raise their voices again. But it’s far from certain that the bulls will push the Dow to new highs until companies begin to deliver on the robust gains in earnings that Wall Street is predicting. The bellwether average peaked at 11,723 in January 2000, about 1153 points, or 11%, above Friday’s close.”

“Few market watchers expect stocks to reprise the 20%-plus annual gains of the late 1990s. Interest rates no longer are heading lower — they spiked up sharply last week on good news about the economy — and most stocks aren’t particularly cheap.”

“But strategists such as Frederick Taylor, chief investment officer at U.S.Trust, think the S&P could rally 10% this year, even without a rebound in the battered technology sector. “This seems to be a broad-based, Old-Economy recovery,” Taylor says. ‘The sense, the feel of the market has changed. ‘ “