Sun Shines on Shares Yet Again

The summer rally continued Thursday, the biggest day of the earnings season.

Thanks to strong earnings from the likes of Starbucks (SBUX Quote) and Dow Chemical (DOW Quote), a well-received change at the top of DaimlerChrysler (DCX Quote), falling Treasury yields, and plain old momentum, the S&P 500(SPX Quote) and Nasdaq Composite(Nasdaq Quote) hit four-year highs yet again.

The S&P 500 rose 6.93 points, or 0.6%, to 1243.72, and the Nasdaq gained 12.22 points, or 0.6%, to 2198.44. The Dow Jones Industrial Average(DJI Quote) gained 68.46 points, or 0.6%, to 10,705.55. Meanwhile, the Russell 2000 rose 1% to 681.33, the latest in a string of all-time highs for the index.

A case of indigestion may be in store for Friday, as any disappointment in a slew of key economic reports -- most notably the second-quarter GDP -- could provide an excuse for stocks to give back some gains.

Notably, the market was treading water Wednesday until a key economic report, the Federal Reserve's beige book, continued to point to the so-called Goldilocks scenario of strong growth with no notable inflation. That helped bulls make the case for breaching new four-year highs on the S&P 500 on Wednesday.

It also helped that a tame inflation picture boosted bond prices and lowered their yields, which have been rising since late June. On Thursday, the benchmark 10-year Treasury rose 15/32 while its yield fell to 4.19%.

"A lot of people are now expecting to keep getting those Goldilocks-type report. But the risks of a disappointment keep growing with every new one," says Chris Johnson, market strategist at Schaeffer Research.

Economists on average expect the economy to have grown at a 3.5% pace in the second quarter, down slightly from 3.8% in the first quarter, according to Reuters. And the GDP's price deflator, one of the Fed's key gauges of inflation, is expected to be up 2.7%, compared with 2.9% in the first quarter.