The Nasdaq 100 drew near a high and the Nasdaq comp ended the week at an all-time high, gaining 0.2 percent for the week to 5,232. The S&P 500 was at 2,184, up less than a tenth for the week and 4 points away from its all-time high. The Dow was up 0.2 percent for the week at 18,576. Market volume was light, one of the three lightest weeks of the year.
Meanwhile, the VIX, the CBOE's volatility index, was at an extremely low 11.55 Friday, trading in a range last seen a year ago. The VIX represents the trading of puts and calls in the S&P 500.
"When we look at VIX under 12, and out-of-the-money call options being priced historically high, reflecting this increased risk of missing out on a rally — after we already had a rally — we think people are being too complacent about risk," said Emanuel. "We're neither calling for a sell-off or an end to the 7-1/2 year bull market. We just think you have to step back and remember that this is a higher volatility environment."
Emanuel said the rest of August could be a "blase drift" where investors are rotating into more cyclical stocks, like technology. But he said the market volatility could quickly return after Labor Day, and history shows that the market action picks up right away in September, often a weak month for stocks.
This September there is an important Fed meeting, though the Fed is not widely expected to raise rates then. Analysts also believe markets may begin to focus on the U.S. presidential election after the summer.
"The kids don't want to come home from the beach, why should the adults? You come home from the beach and the pricing of the risks are low. The risks themselves have not changed, but summertime complacency has driven the price of risk to near cycle lows. That's in an environment where the risks themselves have only marginally diminished over the last several months and are likely to intensify again as we get closer to the election," said Emanuel.
Analysts are still looking for small caps to catch up to the other indexes and hit new highs. The Russell 2000 is about 5 percent below its all-time high.
The last time the three indexes reached new highs together was at the end of the tech bubble, and a year later the Nasdaq was down 39 percent. But there had been 131 instances where all three hit highs between 1986 and 1999, and the market moved ahead afterward.
"This is not the characteristic of a major top in the market," said Ari Wald, technical analyst at Oppenheimer. "After two years of very little movement, and we haven't been in a very wide trading range, we think the bull is getting started again." Wald said his year-end target on the S&P is 2,250.
"We think we're going higher. We want to own stocks," he said. "If you look at the differences between now and where we were last year, ahead of that volatility we had in August, and even in the beginning of the year, the internal breadth is much better, credit conditions are much better than they were, and commodities prices have stabilized. They were in freefall last year. That's the setup equities like."