After fretting about an anemic economy early this summer, investors just reaped the rewards of one of the strongest Septembers in the stock market and are continuing to buy stocks in anticipation of the Federal Reserve juicing growth again with low interest rates.
The Dow Jones industrial average is flirting with 11,000 points, continuing an upward trend that started last month, when the Standard & Poor's 500 index rose 9 percent.
Low interest rates, which the Fed is expected to influence through a process called "quantitative easing," are perceived as an aid to the stock market. They provide low costs to businesses, cheap money for consumers who can get loans and a reason to buy stocks rather than low-yielding bonds.
As investors see countries throughout the world taking measures to keep rates low, they are worrying less about a double-dip recession and positioning themselves for a caffeinated economy and stock market.
"The current issue, in our view, is that investors' portfolio construction needs to shift toward cyclicals," or stocks in industrial, retail or technology companies that climb with the economy, said JPMorgan strategist Thomas Lee in a note to clients Tuesday.
It's not just the low rates that have prompted Lee and others to position investors for a year-end rally. Lee noted that the fourth quarter tends to be the season for rallies, as large investors such as hedge funds try to make up for dreary periods earlier in the year. And he sees "continued healing" for consumers and less economic weakness than previously feared.
S&P strategist Sam Stovall added that since 1990, "the fourth quarter is historically the best quarter for sector performance, as all 10 sectors have recorded relatively strong price increases," from a low of 2.8 percent on average in utilities to a high of 5.4 to 6.7 percent for consumer discretionary stocks.
Still, Harris Private Bank chief investment officer Jack Ablin does not think investors should get too comfortable.