After months spent embracing all risky assets, Wall Street has come to a dividing line: One camp thinks the recent hint of economic slackening is merely a momentary holdup, and yet another chance to buy more stocks. The other isn’t quite as gung-ho and wonders if it should, as the old adage suggests, sell in May and go away.

Stocks flip-flopped for days before ending last week slightly lower, although the flat finish doesn’t camouflage the ongoing retreat from risk. Bond buyers drove the yield on 10-year Treasuries down to 3.187%, near the lowest this year and down from 3.74% in February. The defensive health-care sector has quickly become investors’ favorite hideout, and is up nearly 15% this year. In fact, 19 of 20 health-care stocks have zoomed above their 50-day moving averages, compared with just 69% of the components of the Standard & Poor’s 500.

Some of the apprehension can be traced to erratic commodity prices, which have pulled back from recent records. Inflation in China grew 5.3% in April, slower than the 5.4% pace in March, but still the second-fastest pace in nearly three years. And yet another move by the Chinese government to tighten credit has increased concerns that China’s economy might slow. Bank stocks struggled Friday on recurring fears about euro-zone debt, and weekly jobless claims recently topped 400,000 for a fifth straight week, the longest such spell this year. With gas prices high and job growth slow, some economists are acknowledging that U.S. economic growth this quarter might fall below the 3.2% pace the crowd hopes for, though the pros have yet to cut their forecasts.

Curiously, several Wall Street strategists have continued to raise their profit projections and targets. After all, governments will do anything to prop up the markets, and companies are spending their cash stashes on appeasing shareholders and on deals, like Microsoft’s (MSFT) $8.5 billion bid to buy Skype. Last week, Intel (INTC) raised its dividend, and retailers such as Kohl’s (KSS) and Macy’s (M) saw their shares pop after reporting robust earnings.

All in all, companies are reporting improved first-quarter profits, with sales expanding at a 10% clip that handily outpaces the sluggish economy. After shrinking for much of 2010, the margins by which companies exceeded analysts’ forecasts also ticked higher recently—partly because analysts grew cautious after the earthquake hit Japan. Last week, for example, Deutsche Bank’s chief strategist Binky Chadha nudged his forecast for S&P 500 profits this year to $99 from his previous mark of $96, and also raised his target for 2012 earnings to $106 from $102. He sees the S&P 500 ending this year near 1550.

Douglas Cliggott, Credit Suisse’s U.S. equity strategist, is more circumspect. “Earnings growth is still comfortably positive, but the slope of improvement is tilting lower,” he says. With the profit cycle maturing, tightening credit leading to softer demand in China, Brazil and India, and the U.S. central bank set to end its benevolent asset purchases in June, the market’s tone has turned cautious. Over the past three months, in fact, the top-performing sectors all come with a defensive bent, with total returns including dividends pushing 12.3% for health care, 9.4% for consumer staples, 7.4% for utilities and 7.2% for telecom services.

GMO’s Jeremy Grantham had previously argued that the S&P 500 could top 1400 by October, but now recommends trimming risk exposure. With headwinds including escalating raw-material costs and the end of the Federal Reserve’s second quantitative-easing campaign, he says he doesn’t feel “the same degree of confidence that I did, which was considerable, that the Fed could carry all before it” until October, he writes. “A third round of quantitative easing would very probably keep the speculative game going. But without a QE3, there seem to be too many unexpected special factors weighing against risk-taking in these overpriced times.”

Michael Darda, MKM Partners’ chief economist, had advocated buying cyclical stocks for much of the bull run, but he recently suggested pulling back from industrial, energy and materials and steering toward health-care, consumer and utilities stocks. “As global industrial demand slows and commodity prices come off the boil, the U.S. ISM manufacturing index may fall back to 50 or less, at least temporarily,” he notes. This compression in factory production has historically led to a 10-percentage-point swing in the S&P 500, although cyclical industrial, energy and materials sectors could correct more fiercely.

Moreover, “the commodity boom is long in the tooth,” Darda says. Measured from the 2001 trough to the 2011 peak, the expansion in real commodity prices has endured for 115 months—not counting the eight months or so when prices plunged during the credit crisis, before they climbed anew to fresh highs. That’s almost on par with the 113 months of the housing boom and the 114 months of the tech boom, he notes, constituting “an unprecedented run in both duration and magnitude” (Source: Barrons Online).