Nazz Leads Retreat

The 10-year Treasury note was recently up 13/32, yielding 4.08%.

Currency traders are looking ahead to next week's Group of Seven meeting; there is speculation that European and Japanese officials may work to stem the rapid appreciation of their currencies. Meanwhile, the dollar was still weak vs. both the euro and Japanese yen. The euro was recently worth about $1.2639, while the dollar was fetching about 105.65 yen.

Robust Demand For Stocks

The equity market sold off Tuesday, but as Art Hogan, chief market strategist at Jefferies, often says, "it was like throwing a deck chair off the Titanic." Stocks remain well into the black this year; the Dow is up about 1.6% thus far, the S&P 500 has risen 3.1% and the Nasdaq is up over 6%.

Heading into the year, many experts believed stocks had already priced in very strong economic and earnings fundamentals; therefore, many investors are thanking strong inflows for their good fortune.

"The underlying supply and demand dynamic is still very strong," said Tower. "Money is still flowing into the market."

Looking at the numbers, this is clearly the case. Some $5.7 billion flowed into equity funds in the week ended Jan. 14, according to AMG Data Services. It's the largest inflow since April 2003 and was topped off by another $5.6 billion of new money last week. For some perspective, a total of $17.5 billion was put to work in all of last December, which was a very good month for stocks.

New allocations to equities have been pretty broad-based across investor classes. "If you look back, these flows were initially ruled by big institutions," said David Briggs, head of stock trading at Federated Investors. "A lot of people thought they were missing [the rally] and since we didn't get a pullback, there has been a lot of capitulation buying by retail investors."