Who knew that bulls migrated in the autumn?

The bulls moved to the stock market from the bond market this week. The

Dow Jones Industrial Average

reached an all-time high while bonds sold off, as traders second-guessed their bets on a recession.

Some hawkish Fedspeak and conflicting economic data gave bond traders something to worry about in regard to their expectations for a hard economic landing and the likelihood of a

Fed

rate cut. The Dow and the other major indices ended the week on an up note, albeit for a bit of Friday profit-taking.

"We almost have a Goldilocks scenario," says Art Hogan, chief market analyst at Jefferies. "The stock and the bond markets have been out of synch for a while now, and someone has to get it wrong here, but we won't find out which for a while."

Initially spurred on by a 4% drop in the price of crude oil Tuesday, the Dow broke through its prior record high of Jan. 14, 2000. But the rally really took shape Wednesday, sparked by the other stilt holding up stock prices -- low interest rates. Bond yields and rate expectations fell following a speech by Fed Chairman Ben Bernanke in which he made bearish comments about the housing market. The Dow rallied more than 125 points that day, putting the record far in its wake.

The Dow ended Friday down 0.14% on the day, but up 1.47% on the week at 11,850.21. The

S&P 500

slipped 0.27% on the day Friday, but finished up 1.03% on the week to close at 1349.58. The

Nasdaq Composite

fell 0.28% Friday but gained 1.84% on the week to close at 2299.99.

Some of the economically sensitive stocks fared well this week, again reflecting optimism about the soft landing. Falling in Friday's session, the Dow Jones Transportation Index gained 2.6% on the week. Shares of

Caterpillar

(CAT) - Get Report

and

FedEx

(FDX) - Get Report

gained over 3% on the week, while airlines added major ground on the oil-price drop.

Continental Airlines

(CAL) - Get Report

, for one, gained 10.7% on the week.

Pressuring the Dow on Friday were shares of

General Motors

(GM) - Get Report

, which fell 6.3% on news that Kirk Kerkorian aide Jerome York stepped down from the board of the automaker. Earlier this week, GM and

Nissan

and

Renault

disappointed the billionaire investor by calling off talks to form an alliance.

Indeed, Friday's market revealed other signs of weakness that could stir some anxiety about the sustainability of the rally, says Ron Daino, of Louise Yamada Technical Research Advisors, adding that down volume outpaced up volume Friday, and twice as many stocks on the

New York Stock Exchange

declined than advanced.

"Under the surface, things are a bit worrisome," says Daino. "We expect the market to back-and-fill here, but ultimately we wouldn't be surprised if it stayed in a bullish mode through the elections."

The 10-year Treasury yield fluctuated throughout the week, rallying after Bernanke's speech, to yield just over 4.5%, and jumping over 4.6% the following day after the Fed's vice chairman, Donald Kohn, signaled that the Treasury market was a bit too "certain" about the direction of monetary policy. Where Bernanke erred on the side of emphasizing a "substantial correction" in the housing market, Kohn erred on the side of pointing to a strong economy and the Fed's paramount concern about inflation running at 2.5% year over year.

The bond market was shaken yet again by stronger-than-expected retail sales reports for September, and Friday's payrolls report. The Labor Department reported that the economy added 51,000 jobs in September, much fewer than the 125,000 consensus estimates. That said, the Labor Department made significant upward revisions to August and July's payroll additions to include 62,000 more jobs in the past three months than previously expected.

The bond market's sharp selloff Friday, however, was powered by the government's benchmark revision to payrolls data in the year ended April 2006, to add 810,000 more jobs.

"The backward revision to the nonfarm payrolls caused a tectonic shift," says T.J. Marta, senior fixed income strategist at RBC Capital Markets. "This definitely causes a rethink of how strong this economy is, and it changes the whole argument which was that the little guy was getting hurt, jobs weren't plentiful and that we've had this wageless, jobless recovery."

On Friday, the 30-year bond fell 36/32 to yield 4.83%, while the 10-year fell 22/32 to yield 4.69%. The five-year note fell 14/32 to yield 4.64%.

The behavior of interest rates will be telling for the stock market as the bond market's low yields have acted as one leg of support for stocks. The other leg has been oil, which ended the week below $60 a barrel. Oil closed Friday at $59.76.

The dollar picked up on the stronger economic outlook and the end-of-rate-cut dreams earlier in the week. The U.S. currency rose against the euro and the yen to reach levels not seen since July and March, respectively, writes Marc Chandler, chief currency strategist at Brown Brothers Harriman and a

RealMoney.com

contributor. The dollar finished Friday up 1.04% to buy 119.1 yen, and the euro fell 0.77% to buy $1.259. "The next key levels are seen near $1.2560 and 120 yen," writes Chandler. "A convincing break of these areas warns of near-term scope for another big figure dollar advance."

So, currencies are betting on no rate cuts. Stocks are betting on a Goldilocks economy, and bonds are rethinking their call for a hard landing. In the battle of wills between stocks and bonds, stocks are winning this week.

And, with earnings season launching amid few shocks or profit warnings thus far, the bulls that moved over to the stock market may stay put and graze for a while.

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

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