Wall Street heads into a holiday-shortened week with indexes near fresh highs and debate growing about whether the long market rally still has "legs."
The main indexes made solid gains over the week on the heels of market-friendly comments from Federal Reserve Chairman Ben Bernanke, lifting the Dow Jones Industrial Average to an all-time high.
The Dow advanced 1.48 percent for the week to finish on Friday at a record closing high of 12,767.57 ahead of the Presidents' Day three-day holiday weekend.
The broad-market Standard and Poor's 500 index climbed 1.21 percent on the week to 1,455.54 and the tech-heavy NASDAQ composite index added 1.48 percent to 2,499.31. Both indexes held near multiyear highs.
The market extended its gains over the past week in the wake of comments from Bernanke, who told Congress in a semiannual report that economic growth is picking up while inflation appears to be easing.
The not-too-hot, not-too-cold economic scenario sparked strong gains for the stock market, as analysts read the remarks as suggesting Bernanke and the Fed are in no hurry to hike interest rates.
"The major US equity market indices regained their upward momentum and interest rates fell back in reaction to Bernanke's testimonies on the economy and monetary policy," said Stephen Gallagher, economist at Societe Generale.
"The conclusions -- moderate growth, slowing inflation but a risk that inflation could be higher -- were known in advance. Investors responded enthusiastically nonetheless. The overriding feature from Bernanke was a sense of status quo on policy, and that comes with some relief," he said.
Some analysts are growing more cautious about the market, which has not had a correction since a strong run began last July, and wonder whether too much of the gains are simply from momentum.
"The recent market move itself appears to be the biggest catalyst driving the bulls," said Fred Dickson, chief market strategist at DA Davidson.
Dickson said the market has "clearly moved into `overbought' territory," and that "we would not be surprised to see the `bears' begin to step in and launch sell programs to lock up recently generated paper profits on their long positions."
Others said they believed the rally still had room to run.
"This week's market movement has not created any major changes to technical conditions, which continue to suggest the market has more upside ahead," said Gregory Drahuschak at Janney Montgomery Scott. "We caution, however, a correction at some point is likely. At the same time we continue to think that this will offer an excellent chance to add to positions or to establish new ones."
Al Goldman at AG Edwards said the long-term outlook remains positive, based on the strong economic fundamentals.
"The gurus who have been calling `bear' for months and years remind us of the little guy who cried wolf," he said.
Goldman said the numerous predictions of a correction means some selling pressure has already been absorbed.
"The time to get nervous is when the majority is no longer predicting a correction and have loaded up with stocks," he said. "Long-term investors must concentrate on the big picture of the economy and stock market action. We believe that picture remains positive, and we advise not listening to those crying wolf or bear."
The bond market gained as fears on inflation and rate hikes receded.
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