Many analysts are going into the Memorial Day weekend convinced that the market is still in the midst of a bull run -- but likely to head into a near-term pullback before resuming its move higher.
"I think we're constructive longer term, but we are a little bit cautious now through mid-summer," John Massey, portfolio manager at AIG SunAmerica Asset Management told CNBC.com. "The GDP number that gets revised at the end of this month should be below 1% and that may spook some people."
This past week, stocks faltered before rebounding to close higher on Friday. The Dow was down four straight sessions and the S&P 500 failed to finish above its all-time record close of 1527, although it bobbed above that level numerous times.
Most analysts believe stocks still have further to run, but they aren't expecting the market to march straight up.
"I think the market needs to settle back because it's extremely overbought," said Marc Pado, U.S. market strategist at Cantor Fitzgerald. "I don't think a correction of 7 to 10% is going to happen, but I think we'll see a tight consolidation through the month of June that will set us up for a July/August rally."
"We like the fundamentals, but we don't like the technicals very much," said Brian Gendreau, investment strategist at ING Investment Management. "When the market goes up big-time, that affects a lot of momentum traders. We see margin debt is very high. If we get any kind of bad news at all, we could get a big move like we had back in February."
Looking for Market Drivers
Now that earnings season is over, analysts point out that there's little to move the markets in the coming days. Recently, mergers and acquisitions have played a major role in advancing the major indexes. Year-to-date, M&A volume in the United States is $812 billion, compared with $540 billion at this same time last year, according to Thomson Financial.
"We used to refer to M&A Mondays, and now it seems every day of the week is a merger day," said Pado. "Until we start to see a reversal of those deals, I don't think the market is going to see a whole lot of risk."
Next week, investors expect key economic data to shape the markets. The government will report the latest numbers on Gross Domestic Product. The minutes of the last FOMC interest rate meeting will also be released, and investors will get the latest on the employment situation when the Labor Department releases the monthly jobs report on Friday.
"I think the biggest news is going to be the FOMC minutes," said Gendreau. "They may acknowledge that the economy is a little stronger than they had thought. I expect they will make their usual cautionary statement about inflation."
"We're always looking at employment closely," said Massey. "If payrolls fall below 100,000, that will make us concerned. To maintain growth, you need to produce that amount of jobs every month."
Playing to Win
Most analysts are sticking with their forecast for stocks to end the year higher than they are now. Some are encouraging investors to use summer pullbacks to find buying opportunities.
"We would be buying stocks both internationally and domestically if we were to get a pullback like we saw back in February," said Eric Thorne, portfolio manager at Bryn Mawr Trust Wealth Management.
Brian Belski, chief U.S. sector strategist at Merrill Lynch Investment Strategy Group, is overweight in the consumer staples, healthcare, industrials and telecom sectors.
"We're positioned for the market to be more defensive heading into this summer," said Belski. "Consumer staples and healthcare are the two most defensive sectors of the market, but the two sectors that do best during higher periods of volatility. The industrial sector benefits from a weaker dollar and telecom still has very attractive fundamentals in terms of valuations, strong earnings growth and strong dividend growth."
"This is just the beginning," Ned Riley, CEO of Riley Asset Management, told CNBC.com. "The S&P 500 is making up for the losses of the last seven years. I think this year and next are going to be great years for the stock market."
Phyllis Burke Goffney is a news editor for CNBC.com. She can be reached at firstname.lastname@example.org.