In the hit musical “The King and I,” one of the standout tunes is “Happy Talk.” Such talk, by the way, is what I’m hearing a lot of in the stock market. But not so from one market skeptic, Raymond James Financial’s well-regarded investment strategist Jeffrey Saut.

In his case, it’s unhappy talk. Taking exception to the recent outburst of bullish sentiment from such prominent fellow strategists as Ed Keon of Prudential Securities, Barton Biggs of Morgan Stanley, and Michael Metz of Oppenheimer, Mr. Saut thinks they’re all singing the wrong market tune. He’s particularly critical of Mr. Keon’s strategy – notably his bold recommendation that investors should be 100% invested in stocks, in the process completely excluding bonds and cash from their portfolios.

“Pretty reckless strategy,” Mr. Saut said, adding that it is as reckless as anything he’s seen in all the years he’s been in the investment business.

Mr. Saut may or may not be right, but for now, at least, he seems out of tune with the orchestration of the general market, which is behaving more and more like a young, frenzied rock ‘n’ roller. Indicative of this, stocks have displayed amazing vigor in the face of the recent London and Egyptian bombings and $60-a-barrel oil prices, with the Dow having ballooned roughly 500 points, the S&P 500 rising to a four-year high, and the Nasdaq Composite climbing to a new recovery high. Equally impressive was the Dow’s 3.6% rise in July, its best monthly gain in about eight years.

What’s more, the market’s resiliency has prompted a slew of forecasts, including some from bears who have thrown in the towel, that prices are headed still higher. Generally, projections from the bulls call for additional gains this year of 8% to 10% both in the Dow and S&P 500.

“I certainly wouldn’t bet the farm on such forecasts,” Mr. Saut said. Why not? Because he views the market as fairly overbought and expects stock prices to be marginally lower from current levels by year end. Our worrywart thinks a number of pieces are in place to suggest a mediocre second half. Though his concerns are hardly state secrets, he doesn’t believe they’re fully reflected in the marketplace. Chief among them:

Earnings momentum is slowing. (Earnings, according to Wall Street estimates, are expected to show about an 11% rise in the second quarter, down from an estimated 13% gain in the first quarter, and then slow substantially in the second half and in 2006.)

* The economy is slowing. (Many GDP growth estimates, originally pegged for 2005 at 3.5%-4%, are being cut back to 3.2%-3.3%, and a number of economists see a similar showing in 2006.)

* Corporate layoffs are on the upswing. (In June, companies announced plans to cut nearly 111,000 jobs, and July’s reductions could be steeper.)

* Interest rates are rising. (The Federal Funds rate, now 3.25%, is seen by a number of Fed trackers climbing to 4%-4.25% by year end, although the general expectation is 3.75%.)

* The consumer is getting more fearful. Families plan to cut back spending by 8%, according to a recent survey by the National Retail Federation.

* A new wave of terrorism could be in the offing. “The military says it will cool down, but events in London and Egypt indicate it may be tuning up,” Mr. Saut said.

Although down on the market, he’s still enthusiastic about a number of stocks, observing that “there’s always something to buy.” One of his favorite sectors is homeland security. After what happened in London and Egypt, the wind will be at the industry’s back for a long time to come, he said. His top homeland security picks are Cogent, an aerospace and defense parts manufacturer that’s also in the fingerprinting business, and FLIR Systems, a maker of thermal imaging and obscurant proof camera systems that detect heat and radiation, thus permitting operators to see objects through fog, darkness, and smoke.

He also likes ITT Industries, whose principal businesses consist of 40% water and 40% defense. “Coming wars,” he said, “will be fought over water, not oil.” Yet another favorite is Massey Energy, a leading coal miner.

On the other hand, Mr. Saut would shun financials because of rising rates: likewise, the big pharmaceutical companies, which he believes, like tobacco stocks, will trade on the results of each new trial. He also thinks generic companies will grab a growing market share from the Mercks of the world.