When stocks were suffering a summer slowdown last year, the Bush tax cuts juiced up the economy and spurred Wall Street on to its best full year since 1999.
Now, with an election looming in November, another $50 billion to $60 billion will end up in consumers' hands, creating more manufactured magic. But will the stock market get the same lift from a wave of tax refunds now filling Americans' wallets?
"It will definitely help consumers hold up their end of the economy," said Jay Mueller, economist for Strong Capital Management. "But that doesn't mean we're going to see a repeat of last year in the stock market."
There's little doubt that the tax package was part of the 2003 stock market rally and that the retailing sector's performance played a critical role. The Standard & Poor's retailing index, gained 39 percent last year, far outpacing the broadly based S & P 500's 26 percent gain.
The stronger performance in the retail sector reflects what was happening in the economy as a whole, where consumer spending remained strong even though businesses weren't spending and unemployment was running high.
Scepticism about the recovery mounted during the summer and the market's rally stalled until tax rebate checks arrived in the mail during August and back-to-school sales surged.
Reduced withholding taxes and the child credit rebates put $50 billion into consumers hands. And much of it went into store sales.
"It was an economy on steroids," said John Bitner, of Boston-based Eastern Investor Advisors, "and now we're going to get another dose of steroids in the form of tax refunds the next few months."
Bitner estimates that an additional $50 billion to $60 billion will enter the consumer economy due to higher tax refunds and reduced withholding amounts the first half of this year.
Wal-Mart Stores Inc Chief Executive Lee Scott told a trade group last week that he expects overall consumer spending to tick higher this year, partly from the effect of tax cuts.
"Obviously, people are going to have more money to spend in the coming year than last year," said Clint Stretch, director of tax policy for Deloitte & Touche.
But unlike last year, when the tax cuts helped make the retailers the stars of the stock market, the store sector looks like an athlete that's been propped up by too many additives, analysts said.
"We're dealing with a very cautious consumer," said Kurt Barnard of Barnard's Retail Consulting. "People are likely to take their refunds and bolster whatever savings they have."
Still, the boom in real estate has led to an "echo boom" in for stores that cater to home buyers. Retailers well-stocked with "hard goods," like washers and dryers and kitchen items - names like Home Depot, Lowe's, Williams-Sonoma, and Sears - will do better this year than department stores that specialise in fashion goods, Barnard said.
The housing market will probably cool down later in the year, Bitner said, especially if the Federal Reserve launches a widely expected credit tightening and mortgage rates rise.
But even after home sales ratchet down, home-related retailers are likely to manage well enough through the year.
"There's a six-month positive lag after the housing market slows down when people keep spending for home goods," Bitner said.
Still, the rise of home starts to a 25-year high in December and the surge in housing prices, could be a mixed blessing for retailers, Barnard said. "There is less and less discretionary income. People are spending more and more of their income on home mortgages," he said.
Other sectors like homebuilding, capital goods and industrial production are the most attractive as consumers cease to be the main driver behind the economy and the business sector picks up the slack.
And retail stocks are not likely to be the outsized performers they were last year, analysts said.
The retail stocks were stymied recently by lacklustre Christmas sales and haven't kept pace with the market the past month.
Bitner said that the main driver for any stock gains this year will be corporate earnings gains, a shift from last year when stocks gained from falling interest rates.
Lower rates made all stocks more attractive versus other investments, along with a general feeling that many stocks were undervalued in the 3-year bear market.
This translates to a market that's 'fairly valued," says Bitner, and in which last year's big gainers - like retailers - are getting scrutinised and sometimes pruned by profit-taking. "Last year you had the pendulum shift away from excessive pessimism," said Mueller.
"The fundamentals remain strong but I don't know if there is pendulum swing any more.
The market's OK, but I don't know if there is much bang left."
"The easy money has been made," adds Bitner. "You can't just throw the net out and have everything come back a fish. You have to go out very carefully. The old cliche fits: It's not a stock market but a market of stocks."
Both the Dow Jones industrial average and the Nasdaq composite index finished the week lower, with Friday marking their first down week in more than a month.
The Dow shed 0.30 percent to end at 10,658.29, while the Nasdaq dropped 0.78 percent to close at 2,123.86. The Standard & Poor's 500 edged up 0.15 percent for the week, closing Friday at 1,141.55.
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