Stocks finished higher Thursday, with the Dow and S&P 500 setting fresh highs, boosted by a batch of upbeat economic reports and after Fed Chairman Ben Bernanke reiterated that monetary policy will remain flexible, even as the central bank starts to pare back its bond buying.
The Dow Jones Industrial Average climbed 78 points to best its previous all-time high of 15,542.40 by six points. UnitedHealth and Bank of America led the blue-chip gainers.
The S&P 500 also topped its previous record of 1,687.18. The Nasdaq finished slightly higher after flirting with the flatline for most of the session. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, slid near 13.
"While the [S&P 500] price may or may not hold to set a new closing high (currently 1682.50, set July 15), the current price has pushed the market value of the S&P 500 (adjusted for float) to over $15 trillion for the first time ever," according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
Major averages have been on a tear so far this year, with the Dow and S&P 500 both up more than 18 percent and the Nasdaq up nearly 20 percent.
Most key S&P sectors closed higher, led by energy and financials, while telecoms lagged.
Bernanke returned to Capitol Hill to testify before the Senate Banking Committee on the economy and Quantitative Easing, after reassuring the markets Wednesday that there was no concrete timetable for the Fed to scale back its bond purchase program.
"Our asset purchases depend on economic and financial developments, but they are by no means on a preset course," Bernanke said in his statement to the U.S. House of Representatives Financial Services Committee.
Bernanke also emphasized that there could be a lengthy time-lag between the end of asset purchases and a hike in interest rates.
"People are finally figuring out the Fed's inability to raise interest rates," said Lance Roberts, CEO and Chief Strategist of StreetTalk Advisors. "The big consensus seems to be that tapering will happen sometime by year-end, but the economic traction so far just isn't there."
Roberts warned that stocks may have run too far too fast and expects a sizable correction in the second half as "fundamentals play catch up" after the QE-induced rally.
The FOMC is scheduled to meet on July 30-31 and September 17-18. Bernanke is expected to hold a news conference following the September meeting.
On the economic front, weekly jobless claims dropped by 24,000 to a seasonally adjusted 334,000, according to the Labor Department, to its lowest level in four months. Economists polled by Reuters expected first-time applications to fall to 345,000 last week.
Business activity in the mid-Atlantic region jumped to its best level since March 2011, according to the Philadelphia Federal Reserve, with the index at 19.8 in July, versus 12.5 in the month prior. Any reading above zero indicates an expansion.
And leading indicators, a gauge of future U.S. economic activity, was flat at 95.3 in June, hovering around a five-year high, according to the Conference Board. Economists polled by Reuters had expected a 0.3 percent gain after a previously reported 0.1 percent rise.
Traders also focused on a handful of earnings reports.
(Read More: Earnings: the good, the bad, and not so ugly)
Morgan Stanley spiked higher after the financial giant topped quarterly expectations as revenue grew in all of its major businesses, particularly trading and underwriting.
Elsewhere, Verizon edged past earnings expectations by a penny a share, thanks to strong growth at its Verizon Wireless venture with Vodafone Group. Fellow Dow component UnitedHealth gained after the health insurance giant beat forecasts as more people signed up for plans.
IBM gained after the tech giant posted earnings that topped expectations and raised its full-year outlook, though the company missed on revenue.
So far, 81 S&P 500 companies have reported results this quarter, with 70 percent of companies topping earnings expectations and 49 percent beating revenue estimates, according to data from Thomson Reuters. If all remaining companies report earnings in line with estimates, earnings will be up 3.5 percent from last year's second quarter.
"We saw huge reduction in earnings estimates, so we're beating an artificial hurdle," said Roberts. "But the key thing is revenue—that's the one thing companies can't fix."