“The S&P 500 is the best single barometer of confidence in Corporate America’s earnings power and the strength of the economy,” said George Ball, chairman of Sanders Morris. “The direction of the S&P 500 reflects whether the economy and earnings are improving or deteriorating.”

A few days ahead of the key consumer price index, investors breathed a sigh of relief as a government report — which is usually ignored by markets — confirmed inflation progress at end of 2023.

In the immediate aftermath of the data, Treasuries rose — but quickly reversed that move. The two-year yield went back to levels seen since before the Fed’s December “pivot.”

Fed Bank of Atlanta President Raphael Bostic said he’s “laser focused” on returning inflation to target, and his Dallas counterpart Lorie Logan said she sees no urgency to cut rates.

To David Donabedian at CIBC Private Wealth US, the current economic backdrop supports Wall Street’s bullish momentum.

“The market has pivoted from believing the Fed would be its savior to deciding it doesn’t need a savior with the economy supporting it,” Donabedian noted.

With the S&P 500’s new 5,000-point milestone, the question is: what’s next for the index?

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Performance for the gauge has been positive after reaching major milestones, according to Adam Turnquist at LPL Financial. Of the last nine, the index posted a 12-month average return of 10.4% — with 78% of occurrences producing positive results, he noted.

“A close above this closely watched level will undoubtedly create headlines and further feed fear of missing out emotions,” Turnquist noted. “Outside of a potential sentiment boost, round numbers such as 5,000 often provide a psychological area of support or resistance for the market.”

For now, that’s “just a big round number,” according to Matt Maley at Miller Tabak + Co.

“Of course, if the market rolls over in any meaningful way from this level, that will change things,” he noted. “A failure at that level would make it a new key resistance level. Either way, the stock market has seen a fabulous rally this year. So unless any decline becomes a substantial one, it won’t mean a whole lot for the big picture.”

“While some will say it is just another number in the vast sea of numbers that we digest every day, this one is a bit different,” said Kenny Polcari at SlateStone Wealth. “5,000 represents a new millennium, and so it does create additional excitement. So I would expect the excitement to continue for a bit more.”

Another reason sustaining the stock market’s strength to start the year is certainly the outlook for corporate profits.

With earnings season around two-thirds done, companies are solidly beating expectations. Some 80% of S&P 500 companies reporting results this earnings cycle have surprised to the upside, handily exceeding the 10-year average of 74%, according to Bloomberg Intelligence data through Friday morning.

Analysts are responding by lifting projections. Wall Street now sees fourth-quarter earnings growing 6.5% from a year earlier for S&P 500 members on average — which would be the best since mid-2022 — and up from a meager projection of 1.2% in early January, according to BI.

“The fourth-quarter earnings season has been stronger than expected, giving investors confidence that the healthy economy could continue driving corporate profits,” said Arthur Hogan at B. Riley Wealth.

To Mark Hackett at Nationwide, the strong momentum has brought skeptical institutional and retail investors back into the market — which has a compounding effect on the rally — though it is increasingly driving questions of sustainability.

Indeed, despite all the optimism, warnings about a stretched market keep piling, with the S&P 500 trading above “overbought” technical levels.

“We remain cautious,” said Dan Wantrobski at Janney Montgomery Scott. “On this front, we note narrowing of breadth, ongoing divergences in momentum, overbought conditions in leadership areas, and sentiment that can approach extremes relatively quickly.”

With US equities now trading at 21 times forward earnings amid lofty interest rates and little demand for cheap hedges against the backdrop of low volatility levels, bulls and bears are wrestling over the sustainability of this rally, according to Jose Torres at Interactive Brokers.

“Are we entering a new era of loftier valuations due to rising productivity, increased retail participation, and money shifting from the East to the West?” Torres said. “Or is this a ‘bubblicious mania’ that will end in tears as wild speculation takes over markets? In the end, only time will tell, but my intuition keeps me in the bearish camp.”

Michael Hartnett at Bank of America Corp. says that a speedy rally that sent US stocks on a record-setting spree is now close to triggering several sell signals.

The bank’s custom bull-and-bear indicator rose to 6.8 in the week through Feb. 7, Hartnett wrote in a note. A reading above 8 would suggest the bullish trend has run too far, flashing a contrarian signal to sell, the strategist said.

“Bear positioning in 2023 was markets’ best friend,” Hartnett said. But after investors bought the S&P 500 during last year’s 24% rally, that exposure is “flipping from tailwind to headwind.” He cautioned that “in bubbles, markets show little respect for positioning,” or for valuation. “They solely respect policy and real interest rates,” he said.

The equity market strength despite changing Fed expectations and higher interest rates is notable given the sharp reactions to the Fed in recent years, said Nationwide’s Hackett.

“A less emotional market is a positive sign, though investors must fight against the complacency that is a natural reaction to such a strong and steady bull run,” he added.

To Bret Kenwell at eToro, while stocks may be a bit overheated at the moment, it doesn’t mean the markets are about to go off the rails.

“While it may eventually lead to some profit taking in the short term, this is still a bull market. Until we see material weakness in the economy, it’s hard to get bearish on stocks,” Kenwell noted.