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How This Unloved Bull Market Continues to Smash Records

NEW YORK ( TheStreet) -- A new record high. Then more chatter about a coming correction. Stocks dip ever so slightly, then recover, and presto, yet another record high. And then we repeat.

That's how this bull market has moved over the past few weeks; for every fresh record, triple the fears of an eventual market correction. Even now, with the Dow Jones Industrial Average flirting with a 17,000 level and the S&P 500 spiking intraday and closing in on 2,000, the drivers behind historic gains remain murky and market confidence hesitant. Yet the market continues to creep higher. 

The S&P 500 (^GSPC) has gained 6.8% in 2014 after advancing 30% last year. On Tuesday, the U.S. benchmark closed at 1,973.32.

On this day, at least, the momentum-drivers were somewhat clear: U.S. auto sales gained at a healthy clip, fears of sluggishness in the Chinese economy were partially alleviated as manufacturing expanded for the first time in six months, while U.S. manufacturing booked its 13th consecutive month of expansion, albeit at a slower pace than previously.

Those dinosaurs of industry -- automobiles and manufacturing -- have carried these markets to new heights recently and again on Tuesday, not the slippery high-momentum plays which have moved the market this year with little more than a cough.

The economic snapshot those provided were enough to give small-caps, some of the most beaten-up stocks of the last quarter, a well-deserved boost. The Russell 2000 surged 1.1% to 1,205.94, settling slightly lower after a record intra-day high of 1,213.55.

Over the last few weeks, general momentum among the major indices has been near effortless with the S&P reaching new records with no surge of strength behind gains. Instead, this is a market driven more by fear than hope with tidbits of data powering markets in spits and spurts, said Todd Salamone, an equities analyst at Schaeffer's Investment Research.

"We hit a couple weaker-than-expected reports (PMI and construction) and the fact that we're rallying suggests that there was some fear that the Federal Reserve will increase rates sooner than expected," Salamone told TheStreet. China, he said, had been a major concern after months of data reflecting a shrinking manufacturing base.

"Judging by the price action it would suggest some of these fears have been alleviated which is putting a powerful bid under the market right now," Salamone added.

With those concerns allayed, at least temporarily, Salamone forecasts that the S&P 500 will rise to 1,980 from a technical perspective and even as high as 2,000, a level in hand's reach if an upward trend can continue through this week.

"The S&P ended [Monday] at a little over 15.5x forward earnings, some were 17.5-18x last 12 months' earnings, so from a valuation perspective, that is not nosebleed levels by any means," Fenimore Asset Management investment analyst Drew Wilson pointed out.

As we near the next earnings season, Wilson argues this one will garner more attention than others as investors seek guidance on how to interpret ambiguous macro-economic data.

"For those who are looking for confirming or dis-confirming evidence of the confusing economic statistics ... this earnings season plays a more important role than usual," Wilson said. "Companies' ability to jet their earnings power, their potential earnings power of the S&P 500, that has to continue grow to sustain these levels."

Once a 2,000 level is reached, however, there's the nagging question of whether it can it be sustained.

"I don't think we necessarily have to correct," argued Salamone. "We could get some sideways movement or if a little bit of short-term euphoria among short-term traders, maybe a 3% to 5% pullback, much like the other pullbacks we've experienced along the way, but not necessarily that 10% correction that everyone's looking, and I would say preparing, for."

Even so, an air of caution among investors persists, something Salamone believes is resulting in low volatility and, thankfully, limited panic-selling.

Wilson, however, counters that Wall Street is becoming more comfortable with tame bull market which moves higher though with less conviction than the rallies of 2013.

"People are beginning to acquiesce to a Goldilocks environment," he argued. "You certainly have the hawks out there who believe that global accommodative monetary policy is creating a mirage of economic stability and growth, but it seems like there are more and more believers that we may not be looking at 4% U.S. growth and 7-8% world growth but we are going to grow, we're doing fine and we can continue to plod along."

For many investors, the cheers are clear if somewhat cautious: Here's to more days of plodding along, onward and upwards, towards that historic 2,000 level.

--Written by Keris Alison Lahiff in New York. 

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