Just as recession fears have eased in recent weeks, concerns about global liquidity have slowly receded as investors show an increasing willingness to bet on another interest rate cut from the Federal Reserve.
"Nobody is talking about recession anymore, which seemed to be in vogue about two weeks ago," said Dan McMahon, head of listed trading, CIBC World Markets. "I think people are confident the economy is OK and are looking forward to third-quarter earnings."
Stronger-than-expected jobs data and a deep revision of August's paltry numbers sent stocks higher on Friday.
The blue-chip Dow index of 30 companies rose to a new intraday record on Friday, while the S&P 500 ended at a new all-time high.
The Dow Jones Industrial Average ended the week up 1.5%, the broader S&P 500 index gained 2.2%, and the tech-heavy Nasdaq Composite outperformed ended the week up 2.9%.
"I'm encouraged -- the bulls are making a great case, but this number is subject to more revisions than Enron earnings," said Art Cashin, director of floor operations at UBS.
"Remember a month ago when stocks were on suicide watch? A week later they were headed to new highs, and today they are partying like the Almighty. I remain somewhat suspicious."
"But this is a long, long way from where we were two weeks ago," Cashin added.
The stock market's record highs come amid a drop in the volatility index (VIX) -- Wall Street's fear gauge -- as well as an improving environment in the commercial debt market. Since hitting a multi-month low in mid-August, stocks have rebounded strongly since the Fed cut interest rates by a deeper-than-expected 0.5%.
Analysts say rising stocks indicate a belief that the Fed will continue to lower rates this year in order to stimulate the U.S. economy.
But falling home prices, sluggish employment growth and "the tightest credit conditions since 1991" are likely to take their toll on the U.S. consumer, according to David Rosenberg, chief economist at Merrill Lynch.
"The housing market is still in a fundamental recession, and it's going to get worse before it gets better over the next two to four quarters," said Rosenberg. "I think that consumer spending on discretionary items is the next leg in the domino game."
The current investor consensus sentiment is that the credit crisis is behind us, said CIBC's McMahon, who is not yet convinced.
"To me, that is mind-boggling, there are still a lot risks to the economy on the horizon," he said. "But the general mantra is don't fight the Fed; those who have tried have lost, historically."
One investment strategist said U.S. stocks are in the beginning stages of a new bull market, and he expects big gains by the end of the year.
"I actually think we're undervalued. Earnings are coming in pretty good," said Brian Hicks, president of investment newsletter Wealth Daily. "The markets are still skittish in terms of housing and the subprime market, but if the Fed cuts rates again I think the market is going to go straight up."
Hicks said he believes the Fed will lower interest rates by 25 basis points at its next policy meeting, scheduled for the end of October.
"If the Fed cuts rates, I'm calling Dow 15,000 by the end of the year," he said.
Earnings on Tap
The third-quarter earnings season officially begins next Tuesday with aluminum maker Alcoa set to report. Alcoa, a Dow component, is expected to report earnings up 5% from the year-ago period, but revenue is expected to fall 3%, according to Thomson Financial.
Fellow Dow component and industrial bellwether General Electric will report third-quarter earnings on Friday and is predicted to see earnings rise 13% from a year ago with revenue growth of 4%, according to analysts. GE is the parent company of CNBC.
"Overall I think earnings for the quarter are going to be good, especially for tech, which is driving the market," said Joe Ranieri, managing director at Canaccord Adams.
"Large caps multinationals are also going to do well with the currency rate, and I don't see earnings being a problem for the market," Ranieri said. "We're getting into the middle of earnings right now, and it's been more of a stock picker's market with small caps, but the Russell 2000 has been blasting off here in the last two or three weeks."
Next week investors also will focus on Thursday's retail sales data, which some market pros predict will be a key indicator of the health of the U.S. economy.
Among other notable companies reporting earnings next week: Costco Wholesale and Yum Brands report earnings on Monday; Lam Research and Monsanto will post earnings on Wednesday, and PepsiCo and Safeway report earnings on Thursday.
Peter Kang is a markets writer for CNBC.com and can be reached at firstname.lastname@example.org.