The 14.4 percent total return generated by the Standard & Poor’s 500 Index so far this year is no flash in the pan, says Jim Paulsen, chief investment strategist at Wells Capital Management.
"The market, as a whole, is starting to suggest that this rally has more legs and sustainability than people might think," Paulsen told Yahoo. "You're seeing more and more underlying characteristics aligning with a real rally."
And what are those characteristics?
Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.
First, people are exiting bonds for stocks, as illustrated by the 10-year Treasury yield’s jump to 1.81 percent from a record low of 1.38 percent July 25.
"Even the bond players are aligning for a little stronger economy, a little greater rally," Paulsen said.
Second, cyclical stocks are increasingly taking over from defensive stocks as the market leaders. “You’re seeing outperformance among technology stocks, consumer cyclicals, basic materials, industrials, small caps, and emerging markets,” he said.
And finally, investors are no longer scared by all the talk of doom on various financial fronts. “Our sensitivity to these Armageddon stories is starting to lessen,” Paulsen said.
The stability of volatility indices, like the VIX, proves that, he said.
Not everyone shares Paulsen’s bullishness. Doug Kass, president of hedge fund firm Seabreeze Partners, thinks the market has seen its high for the year.
“There’s a pretty stormy outlook,” he told CNBC. Between June 1 and Aug. 14, only 37 percent of U.S. economic indicators exceeded expectations, Kass said.
Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.
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