The extraordinary streak on Wall Street set fresh records for blue chips over the past week, even as analysts said the frenzy may be setting the stage for a correction, or something worse.
The market faces tests in the coming week amid data on consumer inflation, industrial activity, and results from companies including Wal-Mart Stores and Hewlett-Packard.
More significant, say analysts, may be whether traders will view the red-hot momentum of the market as justified after the recent streak.
"The question plaguing Wall Street is, 'How high is up?'" said Larry Wachtel, chief market analyst at Wachovia Securities.
"The latest rally phase began on March 5 and so is well into its third month. Thus far the advance has shrugged off conventional technical constraints such as extreme overbought conditions."
The market ended mixed for the week, showing only modest pullbacks for some shares after the remarkable string of gains since March. The Dow Jones Industrial Average of blue chips managed a gain of 0.46 percent for the week to end Friday at 13,326.22 after notching another all-time high at midweek of 13,362.87.
The broad-market Standard & Poor's 500 index was virtually flat for the week, rising a scant 0.01 percent to end Friday at 1,505.85 as it edged toward its all-time high set in March 2000.
The tech-dominated Nasdaq composite lost 0.39 percent for the week to 2,562.22.
Michael Malone, analyst at Cowen and Co, said the market tone remained positive after an upbeat message from the Federal Reserve on Wednesday after the central bank left rates unchanged, and indications suggesting inflation may be easing.
The latest data "certainly doesn't put any pressure on the Fed to raise rates and opens up the door to rate cuts in the event economic growth would slow meaningfully from here," Cowen said. "The inflation environment is improving."
But Cowen said it was unclear how much further the rally could run after the stunning gain of more than 10 percent for blue chips in the past two months.
"I'm not sure how much upside there is next week but I do think the downside is also limited, giving the very nature of this market right now," he said.
Wachtel said market has been driven by "the unprecedented global liquidity, the reasonable valuations, the buyout boom, the benign Federal Reserve and the strong earnings season."
But he said momentum could fade if the merger and buyout fever stalls.
"If the deals decelerate along with the earnings, some of the (market) pizzazz will also diminish," Wachtel said.
Fred Dickson, market strategist at DA Davidson, said a key risk for Wall Street is an even more spectacular rise in Chinese shares that seems like a bubble ready to burst.
"The Shanghai Stock Market Index has now moved up nearly 30 percent beyond the peak point reached in February that caused members of the Chinese government to mutter words about capital gains restraint," Dickson said.
Dickson said the situation is reminiscent of the last spike of the Nasdaq in 2000 before that index collapsed under the weight of falling capital investment in the Internet backbone, and that the February 27 meltdown may be a harbinger of things to come.
"The Shanghai index, the darling of Chinese speculators, is now up nearly 50 percent since last November and extended well past the point of irrational excitement," he said. "We suspect a crack in that market would trigger an even bigger global sell-off than seen in late February. We have no idea when sellers will emerge in Shanghai, but all bubble markets burst, and we have no doubt that will happen in that market with a spill-over impact on the major global markets."
Bonds drifted lower for the week. The yield on the 10-year Treasury bond rose to 4.670 percent from 4.640 percent a week earlier while the 30-year bond yield increased to 4.849 percent against 4.804 percent. Bond yields and prices move in opposite directions.
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