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Influx of small investors

At this point, many investors who missed out on the early part of the rally are starting to join the market, adding fuel to the rally, Mr. Wren said.

“Baby boomers are sitting on too much cash and are concerned about the prospects of outliving their money,” he said. “With [bank certificates of deposit] yielding almost nothing, dividend-paying stocks are getting more attention.”

But Mr. Wren concedes that the Johnny-come-latelies to the market remain tentative. “In past cycles, investors would have been trying to jump on the rally train long before now. But this recovery has been different. The economy and labor market have only improved slowly,” he said, and investors are still nursing wounds from the hits they took in the financial crash of 2008.

Ross Koesterich, global chief investment strategist at Black Rock’s iShares, is neutral on the U.S. stock market this year, recommending that investors look for what he expects to be better growth and returns in emerging, market stocks. But he says investors are making a big mistake if they are sitting out the worldwide stock rally.

“The return on cash left in a bank account was negative for 2012. In comparison, world equity markets returned 13.4 percent in U.S. dollar terms during the same period,” he said. Studies show that “investors are roughly twice as sensitive to losses as they are to gains,” he said. Still, people need to get over their bad experiences during the two market crashes of the past decade and give stocks another chance, he said.

Craig Turner, an analyst at Daniel’s Trading, is also bullish about the stock market and said the influx of small investors has just begun.

“The biggest winner is the equity market so far, but I expect more and more money to move into a wide range of risky assets like commodities, real estate, venture capital and the like,” he said.

“There will be hiccups along the way. Europe always has the potential to cause a market sell-off,” he said. Indeed, news emerged Thursday of a deepening recession in Europe.

“The U.S. and Europe are by no means stellar growth prospects,” Mr. Turner said, “but they both seem to always be able to get past a crisis and keep on going. The U.S. dealt with the fiscal cliff [deadline on Jan. 1] and I’m sure they will deal with the debt ceiling, too,” he said, referring to Washington’s need to raise the national debt limit once again this spring.

“Even if the U.S. and Europe continue to kick the can down the road, the markets at this point don’t mind,” Mr. Turner said. “Kicking the can down the road is the new normal, and we can go on like this for a long time before having to pay the piper.”