The falling expectations for first-quarter earnings got ignored in the first three months of 2012 in part because the U.S. economy was showing real signs of improvement, especially in the employment picture. There was also a belief that the Federal Reserve, which starts a two-day policy meeting on Tuesday, would come across with QE3 sometime in the second quarter.
Add in the European Central Bank's moves to calm sovereign debt contagion fears with another bailout for Greece and its massive long-term refinancing operation, which many consider a kind of backdoor quantitative easing, and there's your rally.
Now that the actual so-so earnings are here, even if they are a little better than expected, the market is resetting a bit. Guidance hasn't been great, and ponying up for stocks -- even some of the fundamentally sound ones -- after 25%-plus gains over the past six months suddenly seems, well, risky.
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