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Market Preview: Finding Reason to Rally

NEW YORK ( TheStreet) -- The early returns on second-quarter reporting season are bearing out the idea that low expectations make for easy success.

After skidding for much of last week, the major U.S. equity averages have all found reason to rally. Whether it's the stubborn insistence of traders to find a way to twist whatever comes out of the Federal Reserve into a justification for eventual quantitative easing or else latching onto positives in the mixed earnings reports thus far, stocks are finding buyers again.

The Dow Jones Industrial Average, now up in three of the past four sessions, is back in positive territory for the month. The S&P 500 hit 1375 on Wednesday, its best intraday level since May 7, and the Nasdaq, thanks to its 1%-plus gain, looks primed to make a run at 3,000.

Earnings would appear to have a lot to do with it as companies are turning negatives into positives. Intel (INTC) getting a bump out of a lower revenue outlook being a prime example. Qualcomm (QCOM - Get Report) pulled off the same trick after the bell on Wednesday, rising nearly 7% in extended trades after missing in its latest quarter and giving a below-consensus outlook.

According to data from Thomson Reuters, 71% of the S&P 500 companies that have reported so far -- roughly 13% of the index's components as of Wednesday morning -- have topped analyst expectations. Eleven percent have matched and 17% have missed. That's better than the historical quarterly averages of 62%, 17% and 20% respectively since 1994.

Possibly of more importance is that profit growth has held steady. The blended year-over-year earnings growth rate -- reflecting actual results and shifting analyst estimates -- sits at 5.9% for the quarter, down just a fraction from 6% as of July 1.

There's some sentiment building that all the bad stuff was baked in by the swoon earlier in the month with the potential negatives -- Europe's debt crisis, a mediocre second quarter, the fiscal cliff, softness in the economic data -- getting exposed and talked to death without much actual news to drive the trading. That may have opened up some room to run.

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