Rally Like a Broken Record as S&P Scores New High

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Sure, it took nearly 66 months, but the Standard & Poor's 500 is finally back to where it peaked in 2007.

The broad-based market index broke through its historic closing high Thursday morning, raising hopes that the event could generate another psychological boost that would help continue the strong 2013 rally.

The old mark of 1,565.15 fell quietly, during a low-volume, pre-holiday-weekend trading day that served as a stark contrast to the previous five and a half years of market turmoil.

The S&P's bluechip counterpart, the Dow Jones Industrial Average, eclipsed its 2007 high on March 5 and has set a succession of new tops since then.

While traders usually dismiss round figures and even all-time records as meaningless within the broader scope of market activity, the new S&P mark still served as a road sign of how much damage had been undone to the market since the 666 intraday low in March 2009.

Next up for the average is a break above its intraday high of 1,576.09 set on Oct. 11, 2007.

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"An average person you talk to says, 'I guess things are starting to get better,'" said Brian Lazorishak, senior portfolio manager at Chase Investment Counsel. "Maybe if you significantly take out those old highs, not by just a couple points but really start to move forward, that does bring in some additional funds from the sidelines."

Though the averages have been on a progressive though sometimes-volatile climb higher since the financial crisis, retail investors only recently have begun coming back to the market.

Much of the momentum has come from corporations buying up their own stock to reward shareholders and pump up the sale price.

But the most recent leg of the rally has seen mom-and-pop investors return, as indicated by contributions to mutual and exchange-traded funds.

Due in part to greater retail participation, as well as an improving economic environment and continued money creation by the Federal Reserve, many Wall Street firms have been taking up their market targets.

The Fed has kept its target funds rate near zero and increased its balance sheet past $3 trillion in an effort to keep liquidity flowing and suppress market volatility.

Central bank influence and its long-term ramifications have spurred concerns over the rally's durability.

"This is very artificial, I must say. Give me a trillion dollars and I'll show you a good time, too," investor Jim Rogers, head of Rogers Holding, told CNBC. "I'm somewhat skeptical because I know it's going to end badly."

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Overall sentiment remains strong, even though the most recent American Association of Individual Investors survey has both bullish and bearish levels below historical norms.

Most recently, Standard & Poor's itself upped its target for the "500," from 1,550 to 1,670, a 7 percent increase from current levels.

Despite the optimism, the firm warned that the new record should be approached with caution.

"From a technical perspective, everyone wants to know the implications of the S&P 500 finally setting a new closing high. That day will mean little to us," Sam Stovall, S&P's chief equity strategist, said in a note Wednesday. "It's the action in the period that follows that we think matters the most."

Like Lazorishak, Stovall said he's like to see the index break the old high by at least 2 percent, then drop down for a retest of the record. Stovall noted "divergences" in momentum and internal indicators that point to a near-term pullback.

"We will also note that many indices, sectors, and individual stocks are overbought from a weekly standpoint," he said. "We think that suggests that we will see a significant top in the months ahead, but not in the near term."