Stocks strong as 2012 starts, but will rally continue?

Stocks began the new year with big gains, and that could continue, a Robert W. Baird & Co. investment expert said in a research note today, citing "mildly bullish" economic indicators that could boost markets.

Chief investment strategist Bruce Bittles pointed to a few signs of economic improvement - falling jobless claims, rising contracts to buy new homes and climbing consumer confidence - but acknowledged challenges remain in the broader U.S. economy. Economic growth will likely remain sluggish, due in part to the European debt crisis, and corporate profits could slow, he said.

Still, stocks entered the year with conservative valuations, and investor expectations are low, meaning there is room for an upside surprise, he said.

For now, the strategist sees strength in consumer staples, rating the sector a "buy." Utilities, health care, industrials and consumer discretionary stocks seem to be improving, he said. Bittles rates financials, meanwhile, as the weakest sector, suggesting there's still a long road ahead for many investors.

January is typically a strong month for stocks. So it remains to be seen whether the uptick on the first trading day of the year becomes a trend.