Mutual funds are up an average 19.6% so far this year small-cap funds up 30.7%, the Los Angeles Times reports. The market rally that began March 12 was first fueled by a quick outcome in the war in Iraq and, recently, positive economic data.
But whether the rally continues will rely on strong corporate sales and earnings, analysts say. According to Thomson First Call, sister company of the publisher of this newsletter, the average earnings of stocks in the S&P 500 rose 9.6% in the second quarter and will increase 14.5% this quarter and 21.2% in the fourth.
However, a hefty P/E ratio of stocks in the S&P 500 has bears worried. Stocks are trading at 19 times estimated earnings this year and even at higher levels if net income is used. Pessimists also worry about the debt that corporations and consumers are carrying, as well as whether interest rates will rise.