Wall Street concluded a mixed week on Friday with the market debating the direction of stocks amid conflicting economic signals.
Over a holiday-shortened week, the Dow Jones Industrial Average of 30 blue chips fell 0.48 percent to 11,061.85.
The broad-market Standard & Poor's 500 index managed a weekly gain of 0.17 percent to 1,289.43 and the tech-heavy NASDAQ composite added 0.21 percent to 2,287.04.
Hugh Johnson, chief investment officer at Johnson Illington Advisors, said he sees the rally that started in January as on track -- but with some risks.
"The performance of the financial markets continues to be bullish. That is, the financial markets continue to signal that the current stock market/economic/interest rate cycle has further to go," he said in a note to clients.
But he said the market is confused by mixed economic signals and this leaves the outlook for interest rates uncertain.
One sign of this confusion is the inversion of the yield curve on the bond market, in which short-term rates are higher than long-term rates, which often signals an economic slowdown.
The inversion flies in the face of upbeat economic data and a bullish stock market outlook.
"We are concerned that the Federal Reserve will be seduced by concerns about inflation into raising short-term interest rates too high and causing a turndown in both the stock market and the economy," Johnson said.
"This risk, more than any other risk, is a reason we should not be in a hurry to dismiss as irrelevant the yield curve."
Johnson said that if the Fed lifts its key rate from the current level of 4.5 percent to 5 percent, it may be difficult to make a case for a stronger stock market.
Anderson and Strudwick analyst Kent Engelke said he believes the strong economic data have been skewed by unseasonably warm weather, overstating the risk of inflation and pushing the Fed to a more hawkish stand on rates.
"A concern that we harbor is that economic activity slows because of an overly aggressive Federal Reserve," he said.
The recent Wall Street rally has still not convinced many skeptics.
"The market has been in a rotational uptrend for the past three years, which is confusing, as not all stocks are moving in the same direction at the same time," said Bob Dickey at RBC Dain Rauscher.
Dickey said the market "continues to struggle" in its trading range, but he sees a positive if unexciting trend.
"Now, the market appears to be back to normal and on track for some relatively modest gains within an average yearly cycle," he said. "The current trend of sector rotation seems to be keeping a stronger general market trend from developing in either direction."
Bonds fell over the past week. The yield on the 10-year US Treasury bond rose to 4.567 percent from 4.541 percent and that on the 30-year bond increased to 4.515 percent from 4.512 percent. Bond yields and prices move in opposite directions.