Yet another market bear throws in the growl

Nick M. Do | E+ | Getty Images

It's always interesting to watch market bears give up the fight, and it looks like the bulls have just scored another recruit.

Well, sort of.

Capital Economics, based in London and Toronto and one of the more accurate global forecasters, has quietly surrendered its idea that the stock market was in for a substantial second half selloff.

(Read more: 'Walking Dead' market: Why the rally keeps going)

At the start of the year, the firm had forecast a 1,500 target for the S&P 500, which the stock market index has blown away.

Capital quietly changed that number to a 1,600, but now even seems unsure of that target, which would represent a 5 percent selloff from the current level.

From Capital's Jessica Hinds and John Higgins:

Our existing forecast is for the S&P 500 to end this year at 1,600, and then for it to climb to 1,750 by the end of 2015. The implied sell-off in the second half of this year now seems rather unlikely and we will be reviewing our forecasts in the coming days. Nonetheless we think the scope for gains much larger than those we have already projected for the next couple of years is limited, even if – as we expect – the Fed is very cautious in withdrawing its stimulus.

The Capital forecasters said earnings season has helped bolster confidence—but also has shown how much further margins have been stretched, making major additional gains difficult.

(Read more: Here's what you need to know about earnings (so far))

At the aggregate level, the ratio of operating earnings to sales of S&P 500 companies could even conceivably eclipse its 2006 cyclical peak. A similar picture is painted by some measures of macroeconomic profits. For example, US non-financial firms' domestic profits from current production are close to multi-decade highs as a share of their value added.
Of course, if margins do eventually fall back, further gains in the stock market will depend heavily on increases in its price/earnings ratio. But history suggests this is unlikely once margins have peaked.

—By CNBC's Jeff Cox. Follow him @JeffCoxCNBCcom on Twitter.