Major stock proxies pushed back into positive territory Wednesday afternoon, as oil prices and bond yields came off their highs, which helped investors focus on a flood of fairly friendly economic data.

The data -- including the

Federal Reserve's

beige book, May consumer price index, the June Empire State survey and May industrial production -- all but confirmed market expectations that economic growth is resilient and inflation is tame.

The data -- particularly a weaker-than-expected CPI -- was enough to raise hopes that the Fed is nearing the end of its year-old tightening cycle.

Such speculation helped pressure the dollar, which has soared in recent weeks. The greenback received another blow Wednesday: Foreign financing of the U.S. trade deficit fell short of the mark for the second month in a row in April, according to the Treasury International Capital System, or TIC, data.

The data also hit bonds earlier in the session. The yield of the benchmark 10-year Treasury bond rose to 4.15% before settling back to 4.11%, virtually unchanged on the day.

The drop in Treasuries and the dollar occurred as oil prices, which have returned close to historic highs, retreated in afternoon trade. July crude closed up 57 cents to $55.57 a barrel on Nymex, after surging $1.60 earlier.

Equities benefited as crude retreated. After trading as low as 10,495 earlier in the day, the

Dow Jones Industrial Average

closed up 18.80 points, or 0.2%, to 10,566.37. The

S&P 500

added 2.67 points, or 0.2% to 1206.58.

Underpinning the gains,

Bear Stearns

(BSC)

advanced 1% after reporting second-quarter earnings that easily topped analysts forecasts, in spite of recent concerns over trading disasters at the major brokerages.

Goldman Sachs

(GS) - Get Report

is expected to report its earnings Thursday.

And the technology sector resumed its leadership role. The

Nasdaq Composite

rose 5.88 points, or 0.3%, to 2069.04. Techs were helped by positive comments from Morgan Stanley on

Apple

(AAPL) - Get Report

, which rose 3% and helped offset a steep fall in shares of

Chiron

(CHIR) - Get Report

.

A continued advance for stocks could be linked to the apparently beneficial environment -- aka "Goldilocks economy" -- seen in Wednesday's data.

But there's little doubt that the ongoing upward move in stock proxies has begun to show signs of fatigue; not coincidentally, this is occurring just as indicators of investor sentiment are approaching extreme bullish levels. If investors are so bullish, that suggests they already have put money to work, which means there's less firepower to push the market further ahead.

Yet Cantor Fitzgerald market strategist Marc Pado believes there is no need to put in all those short positions just yet. As long as oil doesn't go above $60 and the yield of the benchmark 10-year bond remains below 4.20%, there is a case for the rally to continue through July, Pado says.

The upward move from April lows began in earnest after nervousness about slower growth, rising inflation, soaring oil prices, and a Fed seemingly bent on raising rates, reached a top.

Then weak growth -- combined with reduced inflation expectations, declining oil prices and expectations that the Fed would stop raising rates -- helped fuel gains in stocks through early June. Underpinning it all, the yield of the 10-year note had been steadily declining from 4.60% in late March. The yield began testing the downside of the 4.20% level in late April, right around the time stocks began to rally.

But Treasury prices have begun heading south again since last week, with the 10-year yield now well back above the key 4% level.

The rally in bonds, spurred by the mystical force of the mysterious "conundrum," had taken the yield to 3.80% on June 3, after a weak May employment report. But it all began to fade last week, after Fed Chairman Alan Greenspan signaled that the Fed intends to continue raising rates, arguably beyond current market expectations.

But stock proxies, apparently still spurred by their ongoing momentum, have not sold off. While Greenspan's hawkishness signaled he's not concerned about a dramatic slowdown in economic growth, lingering market fears over just such a scenario can now be unwound, says Cantor's Pado, who believes the S&P 500 can gain another 5% over the next five to seven weeks before pulling back again.

The "economic resilience is not fully priced into stocks" argument received new fodder on Wednesday as the Fed's Beige Book showed business activity continued to expand from mid-April through May in the 12 economic districts monitored by the Fed.

Beyond specific bets over the market's immediate direction, what surely will be a determining factor is how fast and how high bond yields will rise. "Between 4.10% and 4.20%, the yield is still quite accommodative for growth -- another positive for the economy -- and keeps equities attractive over bonds," Pado says.

Oil prices are another wild card. Beyond a certain point, which many now pin at above the key psychological level of $60 per barrel, oil prices begin to both cut into growth expectations and fuel fears of inflation -- a double whammy for stocks.

To view Aaron Task's video take on today's market, click here

.

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;

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