By Suzanne McGee

Europe's still a mess, the U.S. economy is slowing, consumer spending is stagnating and corporate America's streak of 11 straight quarters of year-over-year profit growth looks like it could come to an end soon. If you just listened to the news and didn't look at a trader's screen, you'd be forgiven for not realizing that we're in the midst of a stock market rally.

Admittedly, the rally often looks anemic and half-hearted. Most notably Thursday, when the Standard & Poor's 500 Index ($INX) and the Dow Jones industrials ($INDU) eked out narrow gains amidst thin trading. Still, the S&P 500 has had six straight gains -- and even European stocks have been on the upswing, rising to their highest levels since March.

It's the kind of rally that only a technical analyst, eyes glued to his charts, could have much affection for. The S&P 500 breaking above the 1,400 mark is a good sign, some of these market analysts argue. If it pushes through resistance at 1,425, the omens will become even more favorable. Sam Stovall, chief strategist at S&P Capital IQ, said in a client note this week that we may be entering the next wave of the rally -- one that could take the S&P up to the range between 1,450 and 1,500. In contrast, he notes, "we think the bears would need to take the market below 1,355 to take back control from the bulls."

But even some technical analysts remain wary of predicting that the events of the last four days can be sustained. "This rally could be on stilts," declared Mary Ann Bartels, head of U.S. technical analysis at Bank of America Merrill Lynch. Bearish signs "are popping up all over," she cautioned in her note to clients earlier this week, and if those signs don't change we might be in for a correction in September.

And with all the headwinds stocks face, why exactly would the market push higher? True, corporate earnings are better than expected, but as we've discussed here on previous occasions, companies in many cases are beating lowered expectations, and falling short of forecasts when it comes to revenues.

Events in Europe remain at a critical juncture; true, policymakers once more have taken a step back from the brink but a real solution to the crisis has yet to be devised. Back home, there's the ominous fiscal cliff: the looming expiry of Bush-era tax cuts and the simultaneous arrival of mandated spending cuts. True, action by Congress could avert this -- but how many of us really believe Congress will act decisively and in a timely manner? And since when has brinksmanship contributed to wise policy decisions?

To some extent, the fact that investors are tiptoeing back into the stock market tells us as much about what is happening in other asset classes as it does about their affection for stocks themselves. Who wants to own government bonds? Either the yields are non-existent (or very nearly so), or they are so high as to warn investors that there's a danger of the government defaulting -- think Spain and Italy, both of whose short-term debt securities continue to yield around 7%. Many corporate bonds aren't that much more attractive; spreads remain compressed. No one in their right mind is thinking of parking their entire portfolio in corn futures and other agricultural commodities, despite the impact of the devastating Midwestern drought on likely crop sizes and thus on prices.

Stocks, on the other hand, do offer some upside as long as investors can identify companies that offer the same kind of combination of safety and modest upside potential. That's one reason that the rally's leadership has largely been confined to larger stocks and more defensive plays, such as health care companies.

Still, there is an argument out there that is at least half-heartedly bullish in nature. The stock market looks forward -- beyond the next quarter's earnings results and out six months or further, past the turmoil of the U.S. presidential election, past the "fiscal cliff" and into a future in which -- just possibly -- European leaders finally have reached some kind of accord that financial market participants believe stands a chance of resolving the region's woes. Possibly even into a world in which the Federal Reserve has finally bitten the bullet and launched a third round of stimulus, perhaps in the form of quantitative easing or possibly of some other variant. As Sam Stovall points out, a change in price levels frequently change ahead of changing fundamentals.

For now, though, stocks are without question climbing that proverbial and clichéd "wall of worry." So the rally may possibly continue, with stocks gaining more ground than they lose over the course of a week, and rising more days than they post declines. Just don't expect to start feeling good about it all.

Suzanne McGee is a columnist at The Fiscal Times. Subscribe to The Fiscal Times' FREE newsletter.

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