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There is more fuel for stocks to continue soaring. Dividend payments are headed for a record year and companies keep buying back stock. Boards approved $118 billion in buybacks last month, the largest single-month total ever, according to research firm Birinyi Associates. Richard Peterson, a psychiatrist and founder of MarketPsych, which advises banks and big money managers, says news coverage of the Dow's run is likely luring people who had remained wary of stocks since the financial crisis in 2008. One fear gets replaced with another. "It's the fear of missing out on a good thing," he says. "People are watching it go up without them." David Savage, a 52-year-old manager of a demolition equipment company, is being cautious about stocks. Savage, who lives in Naugatuck, Connecticut, makes regular contributions to an investment portfolio that includes stocks and bonds as well as real estate. He believes the Dow could pass 15,000 by the end of the year -- that's about 3.4 percent above its Friday level of 14,512. But he plans to see where the market is in June or July before significantly changing his stock holdings. "If I still have that warm fuzzy feeling then, my investments will stay put," he says. "If not, I'll move to less volatile stock positions." Matthew Lemieux, an analyst with fund tracker Lipper Inc., warns that the increased investment in stock mutual funds doesn't mean the Great Rotation is coming.
At the beginning of 2011, stock funds attracted cash four months in a row, the strongest start to a year since 2006. But the cash began to dry up in the spring and summer. Investors worried about the debt crisis in Europe and a fight between Congress and the White House over raising the government's borrowing limit. Stocks have pulled back slightly over the past week amid renewed concerns about Europe and the possibility of bankruptcy in the Mediterranean island nation of Cyprus. At home, Congress and the White House continue to clash, unable to reach broad agreement to head off automatic spending cuts. That's a key reason why Richard Shortt of Somerville, Mass., is sitting tight with the stocks he owns rather than buying more. "Rather than jumping in, I'm prepared to start jumping out," says Shortt, a 68-year-old retired small business consultant. "I've learned through the last two major downturns that you don't buy at highs and you don't sell at lows." Justin Beal, a 39-year-old municipal fire inspector from Clovis, Calif., believes the stock market will continue to remain at or near record levels in the coming months. But that's partly due to the Federal Reserve's policy of maintaining historically low interest rates through its bond-buying program, he thinks. The program will have to be pulled back or ended at some point, potentially ending the stock market's surge. "The records don't really mean a lot," Beal says. "The average guy needs to understand that you can't be jumping on the bandwagon at the end of the rally, when it's greed that's driving the market."
[Associated
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