March 19, 2013, 8:09 a.m. EDT

10 reasons to run with Wall Street’s bulls

Commentary: Why this four-year-old rally is just getting started

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Has the market rally come too far, too fast?

The stock market's race to all-time highs has impressed and surprised many on Wall Street. But even bulls are wondering whether the rally has run its course.

But these problems keep the market rally honest. Furthermore, there are a host of encouraging signs for investors who can look beyond the negative headlines.

Below are 10 reasons the market could move even higher. Feel free to share your own observations in the comments section, and for balance please read a companion piece:  10 reasons a correction could be coming.

And join me online at 2 p.m. today (Tuesday) for a live Twitter debate on the topic. Just submit your comments on either the bull or the bear case to me at@JeffReevesIP  and use the hashtag #bullorbear in your tweets.

Now put on your rally cap:

1. Banks are back

Fat cat financials are unpopular, I know, but on the whole it’s good that major banks are doing better. Healthier bank balance sheets are the result of increased lending, lower loss reserves and higher capital cushions.

Moreover, systemic risk from the mortgage meltdown has mostly been wound down, as has the  overhang of mortgage-related lawsuits.  A hard fact about capitalism is that access to capital is key — and  more loans to small businesses  as well as  increased mortgage lending  are signs of a healthy economy.

2. You can’t fight the Fed

Forget that blip in the Federal Reserve meeting minutes about  possibly tightening policy ahead of schedule. The bottom line is that the Fed has its foot to the floor with its zero interest-rate policy and quantitative easing, and Bernanke & Co.   are decidedly in favor of stocks and against interest-bearing assets.

True, some risk-averse Americans continue to sit this rally out and others have made decent money in Treasurys. But broadly, central bank policies favor stocks vs. the alternatives — and as this rally since 2009 has shown, most investors would be wise to go with the flow rather than fight the Fed while loose monetary policy reigns.

3. Jobs and spending

4. No recession risk

The  St. Louis Federal Reserve actually has a “recession probabilities” chart  based on a combination of non-farm payrolls, industrial production, real personal income and manufacturing/trade sales. The measure is close to zero right now. Also, a separate indicator from  Cullen Roche’s Orcam Investment Research  shows no near-term risk of a downturn based on his firm’s proprietary recession index.

5. Housing

Many pointed out in 2011 and early 2012 that there could be no sustainable recovery without the participation of housing. Well, now we have participation in a big way, with housing construction as well as home values rising decisively. Looking forward,  optimistic researchers such as Nomura are projecting housing starts to grow by as much as 30%year-over-year in 2013. That’s good for jobs as well as the “wealth effect” in American households.

6. Manufacturing

Industrial production in 2012’s fourth quarter was much stronger than reported. Plus,durable goods orders jumped in January  by the highest amount in more than a year, thanks to strong demand for machinery and manufactured metal products. U.S. Manufacturing PMI has remained in growth mode since late 2009, and recent numbers for February saw output rise at the  fastest rate since March 2012.

7. Measured enthusiasm

The American Association of Individual Investors noted in its  most recent sentiment survey  that while bullish sentiment is high, so is bearish sentiment. Despite the Dow Jones Industrial Average  DJIA  -0.43%    hitting an all-time record, bearish sentiment recently rose to 38.5% of respondents, vs. an historical average of 30.5%. Hardly “irrational exuberance” there.

In other words, if equities can rally without the  “Great Rotation” or exceptional bullishness or retail investors, it suggests that further gains are ahead, or, at worst, the gains will stick. It’s hard to claim the market is full of sheep buying anything not nailed down when you see  headlines trumpeting a 100-year bear market.

8. Buybacks and buyouts

There’s cash on the sidelines as it relates to individual investors, and there’s idle cash that businesses are sitting on. Private equity is flush with cash, and corporate cash on balance sheets is double the average level.

This has caused  merger and acquisition spending    to top $219 billion so far in 2013, compared with $85 billion in the same time frame last year. Clearly, businesses think good opportunities are out there — whether they be via buyouts or a  record amount of stock repurchases.

9. New high is not a top

Recent  data from Ned Davis Research  reviewed the 13 highs for the Standard & Poor’s 500-stock index  SPX  -0.55%    since its 1950s debut. The data show that in the worst case, the S& P 500 tacked on another 2.3% over 132 days before peaking. In the best case, the bulls marched ahead for around 7.5 more years — 2,711 days, to be exact — and added another 221.6%. The median since 1954 is 417 days and 18% upside. Granted, this sample size is small, but it’s noteworthy.

10. Stocks can rise even if the economy stalls

This final point is key: Economic growth and stock market performance are not joined at the hip. The Dow doesn’t move in tandem with GDP. Sure, there is an economic element to stocks and corporate profitability. But  a recent Bank of New York Mellon report  cited inThe Economist  showed no hard link between dividends, earnings growth or capital appreciation in the stock market.

In fact, from 1972 to 2009 the nations with the highest GDP growth rate saw stock markets deliver smaller gains than those with the lowest GDP growth rate. So much for the idea that you must have a red hot economy to support a red hot stock market. 

March 19, 2013, 8:30 a.m. EDT

U.S. housing starts rise 0.8% in February

Recovery Builds as Housing Numbers Pick Up Steam

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Apartment construction in Houston, TX

Groundbreaking to build new U.S. homes rose in February and new permits for construction rose to the highest level since 2008, a sign the nation's housing market recovery is gathering steam.

The Commerce Department said on Tuesday that starts at building sites for homes rose 0.8 percent last month to a 917,000-unit annual rate. That was in line with analysts' expectations of a 915,000-unit rate.

Starts for single-family units, which comprised about two thirds of the total, edged up 0.5 percent to their highest level since June 2008.

Permits for future home construction rose to a 946,000-unit rate, also the quickest since June 2008.

Data for U.S. housing starts can be volatile and is sometimes subject to large revisions. The government revised upward its estimate for January housing starts to a 910,000-unit rate.

The housing market has regained some footing after a historic collapse that helped push the economy into a deep recession.

Home building added to national economic growth last year for the first time since 2005 and is expected to provide stronger support this year. That could help counter the drag expected from tighter fiscal policy as Washington works to shrink the federal budget deficit.