U.S. stock watchers optimistic on 2011

(MarketWatch) — The U.S. stock market -- at its loftiest perch since before Lehman Brothers collapsed two years ago -- can rise further in 2011 as long as there are signs the economic recovery is strengthening.

That’s the view of many stock strategists.

“There is still an awful lot of pain out there for sure, but if you get this creeping confidence to accelerate a little bit, it’s surprising how fast things can turn,” said Sandy Lincoln, chief investment strategist at M&I Investment Management.

With stocks at two-year highs, bulls argue the combination of improving economic data, stronger corporate fundamentals and recent clarity on future taxes should propel equities even further.

Conversely, market bears contend the U.S. economy remains dependant on the cheap money supplied by the Federal Reserve, that U.S. debt levels will someday need to be addressed, and that the impact on stock valuations once the scenario changes is uncertain.

“The $64,000 question for stocks is what level of interest rates matter both in terms of impacting valuations due to the rising risk-free rate and in affecting U.S. economic activity,” said Peter Boockvar, equity strategist at Miller Tabak. (more)