BarbaraKollmeyer

Markets reporter

NEW YORK (MarketWatch) — U.S. stocks rallied on Thursday, sending the S&P 500 to its highest close this year and within shouting distance of the record close reached on Dec 29.

Optimism stemmed from news of a cease-fire agreement between Russia and Ukraine, a pickup in oil prices and merger news, with gains building throughout the session.

The S&P 500 SPX, +1.26%  added 19.95 points, or 1%, to 2,088.48, with eight of its 10 sectors finishing higher. Among them, materials, technology and energy sectors stocks led the gains, while utilities and telecoms were the only laggards.

The Dow Jones Industrial Average DJIA, +1.47%  jumped 110.24 points, or 0.6%, to 17,972.38, with 24 of its 30 components gaining. Cisco Systems, Inc. was the top gainer, jumping 8.2%, while American Express Company led laggards, falling more than 6%.

The tech-heavy Nasdaq Composite COMP, +0.89%  rose to its highest level since 2000, aided a third straight day by a climb in the heaviest-weighted component in the index Apple Inc. which was up 1.2% on the day.Apple has gained 6.3% over the past four days.

James Paulsen, chief investment strategist at Wells Capital Management, said today’s sharp rise follows a pattern of snapbacks since December.

“After every pullback, we are snapping back sharply, and I believe that is indicative of ‘buy-the-dip’ mentality, when people are afraid to miss out on the rally. We are seeing too much optimism out there and that’s a concern,” Paulsen said.

“This year I would not be surprised to see the S&P 500 go to 2,200 or back to 1,850, but I think we will finish the year flat, as valuations are too high,” he said.

Ed Shill, chief investment officer at QCI Asset Management, sounded similarly cautious, saying the fundamentals don’t support any further gains.

“We expect 2015 earnings to come below last year’s earnings, so fundamentals don’t support current high levels. But there are other forces driving this market, namely money flows, because U.S. stocks are like the best house in a bad neighborhood,” Shill said.

“We expect some kind of a tradeable correction this year and that would be best for this market,” he added.

News of merger talks between travel companies Expedia, Inc. EXPE, +2.74%  and Orbitz Worldwide OWW, -0.43% which have been discussing a $1.3 billion acquisition, sent both shares sharply higher, up 15% and 22% respectively.