One of Wall Street's best seven-month performances in history has left bears stumped and bulls expecting more of the same.

After bottoming out March 9, the Dow Jones industrial average and Standard & Poor's 500 bounced back sharply, ending the third quarter about 10 percent below year-ago levels. The tech-laden Nasdaq, which had the strongest rally, finished up 1 percent for the past 12 months.

If you look back to the market peak in October 2007, investors have even more ground to make up. After the S&P 500 peaked Oct. 9, 2007, investors in the broad market index lost 55 percent through March 9 and earned 58 percent through Sept. 30, says Geoffrey Gerber of Twin Capital Management in McMurray. The index would have to earn another 41 percent to recover all the ground lost over that past two years, he says.

The consensus economic forecast -- that a weak recovery is under way -- has sparked a wide range of opinion about how far the market has bounced back and where it's headed in the future.

"I feel very optimistic about the market a year down the road," says John Frankola of Vista Investment Management in Wilkins. He thinks many companies have the capacity to return to peak earnings levels within three years.

"If you make that assumption," he adds, "a lot of companies look cheap."

Mr. Frankola isn't bothered by who had led the rally: riskier stocks did better than safer ones; more leveraged companies outshined those with better debt-to-equity ratios; and unprofitable companies outperformed companies that are making money. Just as some believe the rally has been overdone, Mr. Frankola thought the decline was overdone.

But the leaders of the pack perturb Greg Melvin, chief investment officer of C.S. McKee, Downtown. He views the rally as a case of panic selling followed by a bout of panic buying that's left the market slightly overvalued.

"I know of nobody buying because they think the market's cheap," Mr. Melvin says. "It's a low-quality rally symptomatic of panic buying."

Daniel S. Henderson, president of Downtown money manager Cookson, Pierce & Co., thinks Wall Street could get a boost at year-end when investors who sought shelter in safer investments late last year and early this year feel regret over the stock market gains they passed up. If economists are correct, the unemployment rate will start to decline at about the same time.

"That's when you usually see pretty big rallies," Mr. Henderson says. "I think that's what makes 2010 look interesting."

The low interest rates engineered by the Federal Reserve should stimulate growth in the months ahead, Mr. Frankola says.

"The Fed has pretty much said it's not going to destroy the recovery by raising interest rates too quickly. I think they'll keep them low until employment picks up," he says.

Besides spurring growth, low rates are making stocks more attractive to investors earning less than a penny on the dollar in their money market funds. Mr. Gerber believes risk-averse investors holding cash were a significant force in the market's 4 percent rise last month. Satisfied with paltry returns from low interest rates early in the rally, they grew restless the longer the rally lasted, he says.

"You feel like you're missing the boat, and you're getting nothing for cash," Mr. Gerber says.

While low interest rates will help sustain Wall Street's ascent, analysts say the critical factor is corporate earnings. The third-quarter earnings season kicks off Wednesday when aluminum producer Alcoa reports.

Trends have been improving, but much of the good news on the earnings front has been driven by corporate cost-cutting, which analysts say will only go so far. What they're looking for is sales growth, where any increase in customer spending will be magnified on the bottom line because of the lower costs.

"Any little bit on the top line is going to have a major impact on the bottom line," Mr. Frankola says. "I think the earnings surprises we're going to see will come from foreign growth, particularly emerging markets."

Mr. Gerber thinks that at current prices, the market reflects slightly higher earnings expectations than will materialize.

"Earnings growth is definitely picking up, but I think the recovery and growth are going to be at slower rates than the rise in the market would indicate," he says. "Whether the market has overshot the reality is a legitimate question."

Analysts agree that significant rallies often follow significant market declines. But there's little agreement on where the market is headed. Mr. Frankola believes it would be naive not to expect a correction and Mr. Gerber concludes, "We're in a correction phase."

But, according to Mr. Henderson, if you're waiting for a 5 or 10 percent move down, "It could be years before that happens." The increase in trading volume in August and September "is a confirmation the market's going in the right direction," he says.

There's also been less volatility in the market during recent months, calm that Mr. Gerber believes may not be enduring.

"We're still worried about volatility. That could rear its head again," he cautions.

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