What a week! Stocks near records as Trump fears fade

Trump signs $110 billion arms deal with Saudi Arabia
Trump signs $110 billion arms deal with Saudi Arabia

Stocks were not doing much on Friday. Not much was happening on Wall Street. I guess that traders, like most Americans, are too busy getting ready for a long Memorial Day weekend of barbecues, baseball and beer to worry about the market.

But what a week it has been! The S&P 500 and Nasdaq each hit new all-time highs Thursday. Tech juggernauts Amazon (AMZN) and Google owner Alphabet (GOOGL) are flirting with the $1,000 level.

And the Dow is up 2.3% since its nearly 373-point drop on May 16. If the Dow can eke out another gain Friday, it will extend its winning streak to a lucky seven.

Worries about Comeygate and a crisis in the Trump presidency have been put on the back burner while the president has visited the Middle East and Europe this week.

CNNMoney's Fear & Greed Index is even back in Greed mode after hitting Fear levels as recently as last week.

The index looks at seven measures of market sentiment. One of them is the VIX, a measure of volatility. It spiked a whopping 46% on the day of the Dow's big plunge. But the VIX (VIX) has fallen 33% since then and is now back near where it was on May 15.

Can the rally continue? Bulls argue that there's no compelling reason for the market to go down.

Corporate America just posted its best quarter of earnings growth in nearly six years.

Related: Trump thump is short-lived as stocks rebound

Many on Wall Street still think that Trump, despite the Comey concerns, will continue to focus on getting a tax reform bill passed and helping to broker more deals between U.S. allies and big American blue chip companies as well.

Just look at the announcements that Saudi Arabia made during his visit about plans to do more business with U.S. defense and oil companies.

But there are some concerns that the market rally has gone too far too fast -- and that investors may be wrong to cavalierly dismiss the political circus in Washington.

Rick Schmidt, a global fund manager with Harding Loevner, says that he's been cutting back on U.S. stocks because of how pricey they are. The S&P 500 is now trading at around 18.5 times earnings estimates for this year, above its historical norm.

"My biggest concern right now? Valuations, especially in the U.S.," Schmidt said. "You never know a bubble has burst until it already has passed."

To be sure, the bubble talk may be premature. The U.S. economy is still in healthy shape, with the government revising its estimate for first quarter growth on Friday. Europe seems to be on the mend as well.

Interest rates around the world remain low -- even though the Federal Reserve has signaled that several more rate hikes are on the way. Those increases are likely to be small though.

Kelly Bogdanov, an analyst with RBC Wealth Management, said in a report this week that investors should continue to look beyond the DC drama on the Beltway.

Related: Ben Bernanke says instability in White House is 'a reasonable concern'

Bogdanov pointed out that the "political intrigue and instability" would be more of a problem if the economy was in trouble and earnings are falling.

"Bull markets typically come to a screeching halt when the economy stumbles badly and falls into a recession or when the Federal Reserve slams on the brakes and raises interest rates too far, too fast," she wrote.

But she conceded that these are unusual times in the nation's capital. At the very least, investors should prepare for more big swings in stocks in both directions.

"Circumstances that lead to a pullback are often unique and unpredictable, and Washington has dished out a lot of that lately," she wrote.

"While we think it's too soon to project what impact the Trump-related investigations could ultimately have on the market, the process could cause additional spikes in volatility," Bogdanov added.

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