"Overall, the inflation numbers have been below the Fed's target of 2 percent. That's why you're seeing the market call the Fed's bluff to an extent," said Minh Trang, senior FX trader at Silicon Valley Bank. "This has been going on for the whole year. It's really been a poker game between the Fed and the market."
The Dow, S&P and Nasdaq are coming off back-to-back record sessions and had jumped at least 1 percent for the week entering the session.
"Short-term momentum remains positive behind the SPX, supporting the rally off of the August low. The breakout above July's peak makes the path of least resistance higher, and it reflects healthy market breadth, or participation," said Katie Stockton, chief technical strategist at BTIG, in a note.
"We think short-term overbought conditions — which are widespread — will be absorbed via a consolidation phase versus a significant near-term pullback," Stockton said.
Wall Street also paid close attention to geopolitical tension amid reports that North Korea may be preparing to test an intercontinental ballistic missile. The report came just days after the U.N. Security Council imposed sanctions on the Asian country.
Stocks fell sharply earlier this month after North Korea successfully tested a hydrogen bomb, but they were able to quickly regain their footing.
"What you're seeing is people digesting the information they get, but at the same time it's very hard to handicap situations like these," said Lisa Erickson, head of traditional investments at U.S. Bank Wealth Management. At the same time, "We've got solid macro fundamentals. It's not the most exciting environment, but overall, things looks good."