What a Week: Bulls Run

Such revisions were further encouraged by Thursday's strong Chicago PMI report and then Friday's slate of data.

In conjunction, odds of a rate cut anytime in 2007 were slashed to 16% Friday, down from 48% a week ago and 100% a month ago, according to Miller Tabak.

While the stock market successfully handled the downshift in rate-cut expectations, the Treasury market did not. On Friday, the benchmark 10-year note fell 12/32, its yield rising to 4.94%, reaching its highest level in more than nine months. The entire Treasury yield curve moved higher as well as fixed-income traders continued to unwind prior bets on multiple rate cuts this year.

"The fixed-income market got way out ahead of itself," Brusuelas says on my podcast Friday. "I'd hate to be [Pimco's] Bill Gross or the guys at Goldman [Sachs]," among the most prominent bond investors advocating for Fed rate cuts for several months now. "It's going to be painful for them," the economist says. "That's the price you pay when you get way out ahead of the market."

Mysterious Distance Between Bull and Bubble

Heading into the weekend, many believe it is the stock market that has "gotten ahead of itself." Some are even using the dreaded "B-word" to describe a rally that has seen the Dow rise about 85%, the S&P 92% and the Nasdaq 108% since the last bear market bottomed in March 2003. Broader proxies such as the Russell 2000 have fared even better, and, save for the Nasdaq, each of those averages has hit an all-time high in just the past few days.

But "we don't think there's a bubble. There's a bull market. We need to make the distinction," Mark Keller, CIO of Gallatin Asset Management, said on TheStreet.com TV earlier this week. "Bubbles develop when novice capital starts to speculate -- we're not seeing that."

Keller, whose firm manages over $9 billion in assets, was speaking specifically about private equity -- about whose activity he said "doesn't get this strong unless valuations are inexpensive" -- but his comments apply to the broader market as well.

If "novice capital" comes from individual investors, they remain highly skeptical; the American Association of Individual Investors' poll showed bearish sentiment rising to 44.8% as of May 30 from 38.6% the prior week, while bullish sentiment fell to 33.3% from 37.4%. Meanwhile, U.S. equity funds, including ETFs, suffered outflows of $4.35 billion for the week ended May 30, according to AMG Data. Excluding ETFs, domestic equity funds had net outflows of $256 million.

One criticism of ETFs is they have become the playground of hedge funds and other fast-money players. The fact so much of the outflow was linked to ETFs suggests "hedges are being unwound," says Robert Adler, president of AMG. "But we don't know which way they started."

Even after stripping out ETF activity, "it would be a stretch to infer retail demand for mutual funds is pushing [equity] prices up -- it's something else," Adler says.

After this week that something else could be renewed optimism about the U.S. economy, ample liquidity, robust M&A and buyback activity, or a combination thereof.

Or it could be that it's simply a bull market, which continues to reward the dip-buyers and defy the skeptics.

1 What would best describe your stance heading into the coming week of trading? Bullish Bearish Neutral 2 Which of these sectors do you think is set to move up in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities 3 Which of these sectors do you think is set to move down in the coming week? --Choose One--Aerospace and DefenseAirlinesAutomobilesBeverages and Food ProductsBiotechnologyCommercial BanksComputers and PeripheralsConsumer NondurablesEnergy Equipment & ServicesHMOs and HospitalsHomebuildingInsuranceIntegrated OilInternet, Software ServicesInvestment Bankers and BrokersMediaMultiline RetailPharmaceuticalsPrecious MetalsSemis, Semi EquipmentTelecom EquipmentTobacco and AlcoholWireless CommunicationsUtilities View the results without voting