Stocks have been in rally mode - here's what one strategist thinks is going on

Investors are looking at the stock market differently.

For now.

Last week was the best of the year for stocks even though it was a shortened four-day period, as the S&P 500 gained 2.8%.

On Monday, stocks continued rallying, with the Dow closing up 228 points and all three indexes up more than 1%.

And according to Oppenheimer's John Stoltzfus, there's been a shift in sentiment on Wall Street to being "merely skeptical" on the market from being massively bearish.

In his weekly note, Stoltzfus wrote that sentiment was encouraged by the strong economic data from last week, including signs of higher inflation seen in the producer price index and consumer price index reports for January.

Here's Stoltzfus (emphasis ours):

While we expect the recent rally will be tested soon enough, we see last week's improvement in outlook as a move in the right direction and indicative of where the market wants to go as the US economic expansion proves sustainable, if only growing at a modest pace. Much as it has been in the rallies that have taken place over the last nearly seven years, the market, like the Federal Reserve, remains data dependent. Ultimately it is economic growth that dictates and fosters revenues and earnings that push equity markets to higher levels.

So, with encouragement from the data, investors have paused selling to consider which babies, as it were, may have been thrown out with the bath water.

And now investors are buying stocks with attractive valuations, as the chance to buy cheap stocks is one of the big upsides investors get from a sell-off.

But that doesn't mean the worst is over. Stoltzfus included a list of items that could turn sentiment decidedly bearish again, including Fed policy action, oil prices, the effects of the strong dollar and other familiar culprits of the recent sell-off.

And so it's possible that this rally is just part of what could continue to be a very volatile period for stocks.

At least for now, though, investors are willing to take a chance.