Does a strong dollar make a good bubble? Shutterstock.comStrong dollar may lead to bubbleshe concerns that have kept U.S. stocks in check since the start of the year haven't dissipated. But that hasn’t stopped the S&P 500 from marching to within shouting distance of an all-time high. The S&P 500 SPX, +0.96% rose 0.8% to 2,085.23 on Thursday on news of a cease-fire agreement between Ukraine and Russia, and is third a percentage point away from a record close reached Dec. 29, 2014. It isn’t the fundamentals that brought the markets to these lofty levels, as fourth-quarter earnings have been less than stellar. Moreover, 2015 earnings estimates have been dialed down. But some experts believe that the climb higher, driven by the strengthening dollar, can create a bubble in U.S. stocks. The dollar DXY, -0.16% rose nearly 13% in 2014, and is up 4%, so far this year. Conventional wisdom dictates that a stronger dollar hurts corporate profits of large companies, since 46.3% of revenues from S&P 500 listed companies are derived from overseas, according to Howard Silverblatt, senior analyst with S&P Dow Jones Indices. But a beefy buck also makes assets priced in dollars more attractive to foreign investors, which could spark a run-up in stock valuations. Wall Street strategists are forecasting that markets will rise between 5% to 9% by the end of the year. Most point to favorable conditions, such as economic growth, earnings growth, low interest rates, low inflation, share buybacks, and foreign demand as big market drivers. Channing Smith, portfolio manager at Capital Advisors, is less optimistic. “We are already at the level where stocks are simply expensive. If markets rise from this level significantly due to foreign demand or lack of alternatives - this will form a bubble,” Smith said. Ed Shill, chief investment officer of QCI, describes this situation as a ‘melt-up’. He means stocks are approaching bubble territory. “Market can rise on the back of money flows, but fundamentals will catch up. We all know that air comes out of the bubble faster than it goes in, so those who think they can ride this wave should take note,” Shill warned. While record levels vindicate bullish traders, long-terms investors might welcome a correction to stave off the dreaded bubble. Anora Mahmudova