NEW YORK, March 8 (Reuters) - The Dow's run to record highs in the stock market's rally this year may not mean it's time for investors to go on a buying spree.
Instead, many financial advisers are telling clients to go easy, whether they're just getting back into stocks or seeking to add to equity positions.
Questions over how much higher the market can go have kept caution in play, with some technical indicators suggesting the market is overbought.
But the case for investing in stocks is strong, they said, particularly given signs of more strength in the economy, especially Friday's jobs report, which showed a much higher-than-expected 236,000 workers added to the payrolls in February.
"We're telling clients to take a more defensive approach to the market right now," said Frank Fantozzi, chief executive of Planned Financial Services, an independent wealth manager in Cleveland.
Yet stocks remain a better choice than other asset classes, he said.
"If I had to pick a category, I'd still be looking at equities," Fantozzi said. "We still think the market is going to post positive gains for the year."
On Tuesday, the Dow Jones industrial average broke through levels not seen since 2007 and continued to mark new record highs the rest of the week. The Dow is now up 9.9 percent since Dec. 31.
The broader Standard & Poor's 500 on Friday ended less than 1 percent away from its record close of 1,565.15, which it reached on Oct. 9, 2007. The S&P 500 is up 8.8 percent since the end of 2012.
Valuations remain relatively attractive. The S&P 500's forward 12-month price-to-earnings ratio, a commonly used measure to value stocks, is at 13.8 percent, still below its historic average P/E of 14.8 percent, based on data going back to 1968, Thomson Reuters data showed.
Other experts gave similar advice, saying investors should proceed, but with caution.
"We still have some speed bumps ahead of us," said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. "We don't see any urgency to jump in."
U.S. spending cuts loom as Washington debates the path of fiscal policy, while the euro-zone crisis is far from resolved. U.S. economic growth has also been slow.
Another reason for caution: U.S. earnings growth - one of the biggest drivers of the market - is slowing. Estimates for first-quarter S&P 500 earnings are now at 1.4 percent, down from a 4.3 percent forecast from Jan. 1, Thomson Reuters data showed.
"I try to tell people that although it's a great run, there will probably be some pullback, and we'll see it start to taper off into the summer," said Rodd Newhouse, a Dallas-based financial adviser with Wells Fargo Advisors.
Investor interest in the market is high, analysts have noted.
TD Ameritrade Investor Movement Index, which is designed to measure investor sentiment based on data on positions and trading activity, rose to 5.14 in February from 4.71 in January, and is high relative to historic ranges.
Stock funds attracted $7.14 billion in the week ended March 6, data from EPFR Global showed on Friday, well above the previous week's cash gains of $1.2 billion. Appetite for U.S. stocks largely accounted for the inflows.
"Every call that I took this week was (clients asking) 'Why?' They want to know why this market is trading here ... they want to be involved," said Leslie Ferrone, an Oak Brook, Illinois-based financial adviser affiliated with Concert Wealth Management.
Some argue it may be time to take a break from buying.
Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont, said his computer models show the market is "extended," including regression slopes and other indicators that look at how far the market has come and how fast.
"The key here is just don't make a big mistake," Mendelsohn said.
He said he's been reducing his exposure to stocks in recent weeks, reversing a more bullish stance.
"I'm going to err on the caution side here."
Other advice on how to manage the current trend is to shop for bargains while selling stocks with sharp gains.
"We're still riding the wave, but taking profits in some of the higher flyers that have done really well and buying some of the areas that are down for the year and hitting new lows," said Alan Lancz, president of Alan B. Lancz & Associates Inc., an investment advisory firm in Toledo, Ohio.
"We're still finding some bargains," Lancz said.
Fantozzi said he still expects large-cap growth industries to do well, including manufacturing and technology. But he said he would avoid defense companies because of the potential for government spending cuts in that area.
"If there's a pullback, we're not looking at a major pullback," Fantozzi said.
Wall St Week Ahead runs every Friday. Questions on this column can be emailed to: caroline.valetkevitchatthomsonreuters.com