Don't be surprised if some of the market's next moves will be to pull back a bit, as investors consider whether stocks are running too fast.
But that said, there are still a lot of investors ready to load and fire when it comes to the stock market -- and there could be some healthy buying in the week ahead.
"The stage is set for a blow-out rally," said David Kotok, chairman and chief investment officer at Cumberland Advisers. Kotok has been fully invested through ETFs and says contracting risk premiums are making equities more attractive. He's already rotated out of energy stocks and into tech.
"My mind is rushing ahead as to when do we bank some of these profits," said Kotok, a CNBC contributor.
Stocks set some important milestones in the past week. The Dow breached 13,000 and finished Friday at 13,058, the highest close of 2008. The Dow has recovered 11 percent from its March 10 low and is off just 1.6 percent for the year. The S&P 500 gained 1.1 percent for the week, finishing up at 1413, above the magic 1400 level and a short leap from the 1420 some technicians have targeted.
In the week ahead, there is little economic data to consider, but there will be a few big earnings reports. Fed Chairman Ben Bernanke speaks on mortgages Monday evening, and Sears and Aflac have annual meetings that day.
The presidential primaries in Indiana and North Carolina Tuesday will also be watched carefully. Those two races may or may not end the fist fighting between the Democratic candidates, Sen. Hillary Clinton (N.Y.) and Sen. Barack Obama (Ill.).
Of course, this weekend, Warren Buffett fans will all be glued to CNBC.com's live Warren Buffett blog to watch the proceedings at Berkshire Hathaway's annual meeting Saturday.
Whither Stocks Longer Term?
There's a view we keep hearing, that stocks may be on the mend for now and draw in a great deal of money. Yet the effects of an economic slowdown could swing around and hit the market like the tail of a scorpion.
I spoke to Richard Bernstein, Merrill Lynch's chief investment strategist, who made some interesting comments on volatility. Basically, he told me the lull in volatility that we've been noticing is part of the volatility. That makes sense because while it feels good now, some big downdrafts would not come as a surprise if the news takes a turn for the worse.
"A main theme for the year is the underlying trend of volatility would go up, but I was not smart enough to predict the volatility of the volatility. The underlying trend of volatility is still up," he said.
Merrill has been one of the more bearish firms on the street on the economy and was early to call a recession. Bernstein says he thinks investors still need to play defense, though he sees an 8 percent gain in the S&P 500 from March 31, to the end of next March.
"We're much more predicated toward defensive sectors still, staples, some of the health care stocks. We do like some industrials. The two ends of the spectrum that people like to play, we're most cautious on -- financials and commodities and materials," he said.
"We like big old technology stocks, not the kind of sexy consumer-oriented names in tech... We remain big fans of defense stocks. I still think people don't think there's an arms race going on around the world," he said.
Bernstein cautions that some investors are perhaps too ready to declare an end to the impact of the credit crisis.
"It hasn't been a normal boom and bust cycle. It's not a normal recession," he said. Some investors seem to believe the credit crisis will not have a long-term impact on the economy and that it is like the crisis created when hedge fund Long Term Capital imploded in the 1990s.
"Our feeling is that's premature until credit conditions start to ease," Bernstein said.
"...People forget there's the issue of who bought the CDOs and put them on their balance sheets and have to mark them to market. The other side is, who has kept mortgages and consumer loans on their books without securitizing them? That's why our small bank analyst is so negative on small banks."
Bernstein's personal belief is that the market could retest its lows.
"You still want to be very cautious toward the equity market within the concept of okay returns. I think if you're a large-cap, high-quality investor, you'll eke out gains over the next 12 months...you want to be very cautious about getting sucked into things. There are a lot of very short-term momentum players that can turn it around," he said.
Bernstein, by the way, will be a guest host on "Squawk Box" Thursday.
Red Hot or Not?
Stock traders in the past week have been betting that the commodities rally is fading as the dollar strengthens, reversing a trend that juiced commodities prices, commodities-related stocks and stoked inflation fears. The Fed's decision and comments Wednesday triggered a rally based on the belief that it will stop cutting rates and allow the dollar to strengthen.
Kotok says, though, that the trend of rising commodities is not dead, especially in agriculture. "Ag will self-correct too, but in my view, it will take a number of years. We have a confluence of rising demand," he said.
The story for metals is a bit different. Platinum, for example, is experiencing real shortages because of power shortages in South Africa.
"We did not lump them [commodities markets] together, and we dissect them because the concept is 'do you have a trend supported by fundamentals that shifts the demand curve or shifts the supply curve, or do you have a relative price change?' A relative price change is influenced by a speculator," Kotok said.
- Video: Schwab's CEO on Commodities (2 mins 18 secs)
Technical analyst Louise Yamada said on "Power Lunch" Friday that she thinks the upward trend in commodities still has a ways to go. She pointed to the Reuters-Jefferies CRB index of 19 commodities.
"You have to remember that, in 2003, the CRB broke a 23-year down trend and embarked on a new structural advancing trend, so it's young," she said. She believes the advance will continue.
Dialing for Dollars
I asked Boris Schlossberg, senior currency trader at DailyFX.com, whether he thinks the dollar has reached a turning point.
"I definitely think this is an intermediate level turn," he said.
Schlossberg said, interestingly, that a sentiment indicator at his firm, based on his clients' views, shows they became extremely euro bullish last week (just when some investors, in hindsight, say the euro was peaking and the dollar troughing). The contrarian indicator has not shown such a strong trend since 2004, he said.
"Whether this is the big turn is very much an open question, because there is still at tremendous amount of structural issues in the U.S. economy and none of those issues is going to go away. They've been shunted aside," said Schlossberg.
He said the dollar's strengthening may just be because the euro is weakening on economic softness in Europe. For the U.S., the consumer is the big risk. "You have this toxic combination of high debt and four dollar a gallon gasoline. That is restrictive in terms of spending," he said.
The dollar gained 1.2 percent against the eurothis week, taking it to $1.5413 per euro.
The dollar now is down 5.3 percent against the euro since the start of the year. The 10-year Treasury rose 6/32 points for the week and is yielding 3.845 percent. The two-year fell 1/32, to yield 2.444 percent.
Bonds and Oil
Oil snapped back Friday after dipping earlier in the week. MF Global senior vice president John Kilduff says that a return to highs is likely. Positive economic data, the GDP and a better-than-expected jobs report are supporting a rise in crude even though supplies are building.
"Treasury yields are up but not dramatically. This whole LIBOR thing is still playing out. The 2-year briefly touched 2.54 percent. That was the highest yield in more than 3-1/2 months," said CNBC's Rick Santelli.
"The best trade in the Treasurys right now is to establish a short in the longer yield bonds, specifically 10- and 30-year bonds. The inflation trade isn't dead. It just got masked by more selling in short maturities, reversing that flight to safety trades from last quarter on the perception the Fed's done easing. That's also part of the selling in the short end," said Santelli.
After last week's deluge, there's very little on the economic calendar for the week ahead. But one key source of economic information will be the chain stores' monthly sales reports on Thursday.
The retailers, even more than usual, are an early-warning system of sorts for the government's retail sales data. They also often comment on current conditions and their expectations when they release their reports. The health of the consumer is very key right now in determining how the economy is shaping up.
Also on the calendar next week is ISM non-manufacturing data for April, released at 10am ET Monday. On Wednesday, productivity and costs are released at 8:30am ET and pending home sales are reported at 10am. Weekly jobless claims are reported on Thursday at 8:30am ET and wholesale trade is Thursday at 10. International trade data is reported at 8:30am ET Friday.
For the energy markets, weekly oil and gasoline inventory data is reported Wednesday at 10:30 and natural gas inventories are released Thursday at 10:30am.
Fed Chairman Ben Bernanke speaks on Monday evening at the Columbia Business School's annual dinner on mortgage delinquencies and foreclosures. He will not take questions from the audience at the 8:30pm ET event in New York. Former Fed Chairman Alan Greenspan speaks in New York Thursday at 12:30 p.m.
Earnings are really winding down in the week ahead. Anadarko reports Monday. On Tuesday, Cisco , Disney and Fannie Mae report. News Corp. , Transocean and Foster Wheeler report Wednesday; and AIG and Toyota report Thursday.
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