The benchmark S&P 500 hit a new intra-day record high of 1858.71 before tailing off and closing less than one point shy of its Jan. 15 closing record of 1848.38. Monday's 0.6% gain erased nearly all the 5.8% loss it suffered from mid-January through its Feb. 3 low.
A record close would mark the official end to the 2014 mini-correction and reaffirm that the five-year stock market uptrend remains intact.
The big question now is whether the U.S. stock market is poised to break out to the upside in a style reminiscent of last-year's mega-bullish run — or whether future gains will come more grudgingly.
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Investors shouldn't expect a repeat of 2013
, says Nick Sargen, chief investment officer at Fort Washington Investment Advisors, whose outlook mimics the current thinking on Wall Street.
"I am a bull, but I'm not in the raging bull camp," says Sargen. "My call is for a higher but choppy year. Not a runaway market."
Market sentiment has taken a 180-degree turn in a three-week span. What changed?
Many of the worries that drove prices down early in the year have subsided.
The emerging-market currency crisis, which hit countries such as Turkey and South Africa, has "cooled off," says Sargen. That reduced fears of a repeat of past crises, including turbulence in the late 1990s that began in Thailand and Russia and spread to the U.S. and other world markets.
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Wall Street also opted to give the sputtering U.S. economy the benefit of the doubt. Investors, citing the ill effects of nasty winter weather, were ! willing to look past weak readings on U.S. home sales, manufacturing and retail sales. They're betting the economy still has enough positive drivers in place to grow at a faster clip this year than last.
Fears that the Federal Reserve's leadership transition from Ben Bernanke to new Chair Janet Yellen could be potentially rocky were put to bed on Feb. 11. Yellen, in testimony to Congress, was able to reassure markets that under her leadership, the Fed will remain supportive of markets.
"The uncertainty regarding Yellen is behind us," says Andy Brooks, head trader at T. Rowe Price.
But if the stock market, which also got a boost from merger activity and better-than-expected fourth-quarter corporate earnings, is to keep rallying, a few things need to happen.
• The economy has to deliver. The data can't remain weak forever; it has to bounce back this spring, says Hugh Johnson, chief investment officer at Hugh Johnson Advisors.
"If we start to get numbers that are consistent with the consensus view that the economy is not only going to get better, but get progressively better, then the picture will change, and the market can move higher," he says.
• New highs must stick. "A healthy market is one where everything is on the same path" and hitting closing highs, says Bruce Bittles, chief investment strategist at R.W. Baird. To confirm a breakout, the S&P 500, the Dow Jones industrials and the Russell 2000 small-stock index must all top their record highs from earlier this year, he says.
• Skepticism must remain. Less optimism is actually bullish, says Price Headley, CEO of investment site BigTrends.com. "The pullback cooled optimism, which is healthy," he says. "I want people to be worried. I want the pullback dialogue to continue."
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