Economic data could continue to make the markets fluctuate, but many analysts say liquidity will ultimately keep the rally going.
Stocks finished the week up, with the Dow Jones Industrial Average posting a triple-digit gain just one day after posting its first triple-digit loss since March 13. Money managers expect the market will have pullbacks in the near-term, but many say the overall trend remains bullish.
"Obviously no market goes straight up and we will have another correction at some point," Timothy Ghriskey, chief investment officer at Solaris Asset Management told CNBC.com. "The big underpinning for this market is M&A and the amount of liquidity in the financial markets. That's a very powerful driver."
"I wouldn't be surprised to see more pullbacks," said Richard Cripps, managing director of portfolio strategy for Stifel, Nicolaus Capital Markets. "May is a month that, historically, if you are more of a seller than a buyer, that's a good thing. We're getting the shadows for some kind of corrective pullback, but it hasn't been strong enough to overcome the momentum that's out there."
"The overall path of least resistance has been higher and even with the economic data coming out next week, it feels like we want to go up," said Bill Nichols, senior managing director of equity trading at Bear Stearns. "The available pie, if you look at the market overall, is shrinking because of stock repurchases and M&A. There's less supply around and it looks like we're going higher.
It's the Economy
In recent weaks, strong corporate earnings have powered the markets. However, on Thursday, weak April retail sales and a widening of the U.S. trade deficit helped to drag stocks lower. Then Friday, the markets rebounded on tame wholesale inflation data.
Analysts say economic data will likely continue to drive the markets next week when Wall Street receives more housing numbers and the latest Consumer Price Index.
"We'll have the CPI release where the headline number is likely to be surprisingly elevated as prices at the gas pump have been rising ahead of the summer driving season," said John Miller, portfolio manager with Nuveen Investments. "But the core rate should be very well contained, which is representative of the underlying inflationary trend. So that should be a positive."
"I think you have to look at the housing numbers," said John Manley, private client strategist at Smith Barney. "If you examine what caused the slowdown, there's nothing to indicate it will rip through the economy."
Most companies have reported earnings, but investors could also pay close attention to major retailers reporting next week after many posted disappointing April same-store sales. "That might not be the prettiest story," said Ghriskey. Wal-Mart, the world's largest retailer, reports next week, as well as Home Depot , Federated , JC Penny , Kohl's and Nordstrom.
Buy on the Dips
When the market does pull back, many analysts are encouraging investors to put new money to work.
"We want to use short-term weakness to get back in on the long side because this rally isn't over," said Bill Strazzullo, chief market strategist at Bell Curve Trading. "There's another major push on the upside. That means 1575 to 1600 in the S&P, 13,700 to 13,800 in the Dow and 2650 in the Nasdaq composite."
"New cash, we'll use to buy the dips," said Harry Clark, CEO of Clark Capital Management. "A correction happens in May quite often, but the summer should be strong. I think right now, we could see a minor pullback of 3 or 4%, then it's off to the races for the summer."
"We're seeing plenty of skeptism wherever we look," said Todd Salamone, director of research at Schaeffer's Investment Research. "We found in February/March, there was a fair amount of skeptism before that correction. Ultimately, what we learned from that is when we're in that mode, it suggests any correction that does occur can be a gift in terms of a buying opportunity."
Gems in Many Sectors
Analysts say investors can find good buys in select stocks across several sectors.
Ghriskey likes Commercial Metals Company , which manufactures steel and metal products. "The company has strong earnings, given what's happening to commodity prices and the service center's ability to pass those along. They certainly reflect a high level of demand."
Ghriskey owns CMC personally.
Cripps likes the financials sector and recommends Bear Stearns , Lehman Brothers and Wells Fargo. "These stocks haven't really kept pace with the market over the past few months," he said. "Expectations are low from an earnings perspective, so I anticipate they will do well from here."
Stifel, Nicolaus owns all three companies in their portfolios.
If you're hungry for restaurant stocks, Salamone suggests Buffalo Wild Wings and Chipotle Mexican Grill. "Look for stocks that display positive earnings surprises and strong price action," he said.
Salamone does not own either stock personally.
Phyllis Burke Goffney is a news editor for CNBC.com. She can be contacted at firstname.lastname@example.org.