Why the Market's Long Rally Might Not Last Much Longer

Stock and bond funds continue to rake in the cash, global stocks are around 12-month highs and US companies are beating earnings expectations as volatility sinks.

A trader at the New York Stock Exchange.
Photo: Oliver Quillia for CNBC.com
A trader at the New York Stock Exchange.

But some pros think the current rally may not last.

Heading into next week, there are some signs that investors may be becoming more jittery about taking on risk than they have been lately, or at least keener to book profits.

"It has been a lovely rally," said Odd Haavik, a managing director & CEO of Charles Monat Associates, on CNBC Asia."I think right now is a beautiful time to take some money off the table and to really try to protect it rather than to go for broke by expecting a super recovery back up to '07 highs."

Haavik isn’t alone in his thinking.

“If you have profits, take it off the table,” Kirby Daley, a senior strategist at NewEdge Group, also told CNBC. “Without further (US government) stimulus, the markets should start to correct.”

While no one is calling the market rally since March a bubble, there is concern that the rally has been so fast and furious it needs a hiatus.

Many analysts say there are no catalysts due next week to fuel the rally. If anything, some of the news expected next week could actually trip up the rally, like the third-quarter GDP report.

Of course, market pros have been predicting a sharp pullback for several months now. Instead, the rally has just kept going.

In part, that's because earnings so far have been surprisingly good and the economic data is generally positive.

The latest Thomson Reuters research into the U.S. earnings season, for example, shows that with a third of the S&P 500 index having reported, 78 percent have beaten expectations. (Click here for more from Earnings Central.)

The figure is 90 percent for technology stocks and 59 percent for financials.

That said, it only took one Wall Street analyst sell recommendation this week—on a bank—to tip the whole market downwards for a day. The Dow Jones Industrial Average dropped 100 points on Wednesday after banking analyst Dick Bove downgraded his rating on Wells Fargo.

Economic data has been coming in positively enough to support risk assets—Britain's poor gross domestic product (GDP) report on Friday notwithstanding—but very few economists expect it to become robust.

ING Investment Management said this week, for example, that it now expected subpar growth in Europe and the United States next year, even though it forecast above potential growth for the rest of this year.

It suggested, however, that equity markets are only partially being driven by economic factors and that a lot of what has been going on is based on investors moving out of low-yielding cash into riskier, but higher-yielding assets.

"While it might not have felt like it and it won't be music to most people's ears, a lot of the easy money has been made," said Tristan Hanson, head of strategy at South African-owned investor Ashburton.

"I wouldn't give it a awfully high probability of another crash," said Haavik. "I don't see anything from what I look at that would indicate that. But everything I look at tells me that something here is not right."

—Reuters contributed to this report.