Wall Street strategists are looking at the stock market and loving what they see, pushing some to kick up their price targets even though the market's path looks inundated with landmines.
Piper Jaffray jumped to the front of the market bull line Thursday, releasing projections that put the Standard & Poor's 500 on a glide path to 1,550 in six months, 1,700 in 12 months, and a fat 2,000 two years from now.
With Europe in recession (learn more), the U.S. facing the dangers of rising taxes and spending cuts associated with the so-called and growth slowing around the world, such projections seem a tad ambitious and dependent on a virtually perfect world in terms of policy making.
"The bias is certainly to the upside, there's no doubt about that," said Dan Greenhaus, chief global strategist at BTIG in New York. "But picking a price point at this time is fraught with difficulties given the importance of policy makers."
Piper Jaffray, though, is hardly alone in its optimism.
Standard & Poor's/Capital IQ recently boosted its 12-month S&P 500 target to 1500, JPMorgan expects the index to jump to 1,475 by early November, and investor sentiment levels are finally coming off bearish levels seen through most of the year. The American Association of Individual Investors said Thursday that poll respondents are now 41 percent bullish, the first break above the long-term average of 39 percent since March.
So what's causing all the happy feelings?
The current rally off the early-June lows has come primarily because of confidence that central bankers, both in Europe and the U.S., are about to juice their respective economies with more easing aimed at stimulating economic growth.
But there are other reasons as well.
Piper Jaffray principal Craig Johnson pointed to historical similarities of the current 13-year secular bear market to market behavior of 35 years ago or so. Those similarities include a long-term market consolidation, low trading volume and rising bond yields.
Johnson expects falling commodity prices, rising earnings and an economic recovery led by housing to boost the stock market.
"Evidence suggests to us that conditions are right for the broader market to finally break out to new highs, and thus a new bull market may be closer than most investors think," Johnson said in an analysis for clients. "The parallels of the current secular bear market with that of the 1970s through the early 1980s suggest that we are in the latter stages of a bear market."
Indeed, someone falling asleep 13 years ago and waking today would find a stock marketlittle changed.
Trading volume is averaging 5.7 billion shares in August, the worst in five years.
And government bond yields have come off their historic lows, with the 10-year Treasury rising from 1.43 percent on July 25 to 1.68 percent Thursday afternoon.
Sentiment remains poor despite the AAII poll, with money flooding out of equity mutual funds and into bonds as most investors remain unconvinced that stocks will not get throttled by the various macro concerns lurking.
"History and technicals appear to be agreeing with each other, whereas fundamentals and macro concerns are keeping people on the sidelines," said Sam Stovall, S&P's chief equity strategist.
In fact, Stovall said the primary thing that could stop the market rally is too much enthusiasm, and he pointed out that September is the market's worst month historically and could be ripe for a modest pullback amid all the bullish chatter. (Read More: Stocks Have Peaked, 'Warning Signals' Everywhere: Report.)
Those currently in the market may say, "Wait a minute, we don't want too many people on our boat, you're going to swamp it," Stovall said. "What that might do is set us up for a traditional September softness."
Similarly, Jim Paulsen, chief market strategist at Wells Capital Management Management in Minneapolis, maintains his perpetually bullish stance though he, too, fears that the biggest obstacle for the market's future is overheated sentiment.
"When the consensus investment mindset eventually recovers from an overwhelming bout of crisis psychosis, the stock market rally will likely be near its end," said Paulsen, who has a 1,500 price target on the S&P for 2012.
What he worries about more, though, is that investors have already "missed the best part of the rally" because sentiment was too negative, and by the time the bulk of investors come back, the rally's end will be near.
"You can't wait until you feel comfortable about the world before you invest, because by the time you feel comfortable this thing will be significantly higher valued," he said. "By the time you go in, maybe it's not over, but it's much riskier."