Bear market, what bear market?

The

Dow Jones Industrial Average

added almost 98 points, or 1%, on Tuesday to close at 10,759.43, its highest level since June 2001. In so doing, the index has retraced all but about 1,000 points of its all-time closing high of 11,722.98 back in January 2000. And that's almost 3,500 points above its October 2002 low.

Johnson & Johnson

(JNJ) - Get Report

was the only loser among the 30 members of the index on Tuesday, falling 0.2%, while

Pfizer

(PFE) - Get Report

led the gainers as it rose 3%. The day's move erased the previous best intraday level in 2004 of 10,753 back on Feb. 19. The

S&P 500

gained 1% on the day to 1205.45 and the

Nasdaq Composite

added 1% to 2150.91.

Steel, trucking and railroads all helped the markets advance, with multiple issues setting new 52-week highs.

U.S. Steel

(X) - Get Report

gained 3% to set a new one-year high at $53.40, a feat also accomplished by

J.B. Hunt

(JBHT) - Get Report

, which rose 1% to $44.20, and

CSX

(CSX) - Get Report

, which added 2% to $39.82.

Lehman's upgrade of

Intel

(INTC) - Get Report

, which rose more than 3% on the day, helped pull up the whole sector; the Philadelphia Semiconductor Index gained 1%. Of course, Lehman didn't upgrade its neutral rating on the whole sector "given what remains a mixed macro outlook."

RealMoney

contributor John Roque has compiled a set of new bellwether stocks to get a sense of the market's core strengths. His five-component index comprises

eBay

(EBAY) - Get Report

, the

Chicago Mercantile Exchange

(CME) - Get Report

,

Target

(TGT) - Get Report

,

Yahoo!

(YHOO)

and the Philadelphia Housing Sector Index.

The index has appeared overbought from a technical perspective for some time, but after moving 30% above its 200-day moving average on Dec. 15, it has since slipped a bit. That's an unusually high margin above the 200-day average for almost any index, apart from the 1999-2000 Internet bubble peak, Roque points out, warning that the market is close to an "an interim peak."

He's looking for the S&P to retreat to around 1175, not a major correction by any stretch.

Oil was virtually unchanged on the day as crude futures lost 2 cents to $45.76. Bonds gained slightly, with the yield on the 10-year Treasury note dropping to 4.17% from 4.20% on Monday. The dollar gained against the euro, rising to $1.3364. The yen lost ground against the dollar as well, falling to 104.39.

Hopes for higher interest rates from the

Fed

helped bolster the dollar. Richmond Fed President Jeffrey Lacker sounded a hawkish note on the Fed's 2005 outlook, although he included the now mandatory caveat that all was dependent on future economic data.

Lacker said the economy would grow as much as 4% next year, adding that he was confident that inflation would remain under control. The Federal Reserve will keep raising rates despite low inflation as long as the economy shows continued signs of strong growth, he said.

"Even if inflation remains low and constant, as we would like, we may still need to move the fed funds rate fairly often," Lacker said.

Also on the inflation front -- consumers with teen-agers at home watch out -- cereal prices at the supermarket are going up, according to

General Mills

(GIS) - Get Report

CEO Steve Sanger. The company blew past analysts' estimates for the quarter ended Nov. 28, reporting a profit of 97 cents a share on a 19% gain in earnings. Despite only a 4% increase in sales and higher materials costs, Sanger said, General Mills was able to cut costs and raise prices, not all of which were passed on to consumers. The company also had a lower tax rate in the latest quarter.

Materials costs rose 5% from the same quarter in 2003, while selling, general and administrative expenses fell 6%. For the quarter, "the pricing and productivity initiatives we've implemented to offset higher input costs began contributing to our bottom line," CEO Sanger said.

Looking ahead to the next six months, Sanger said "plans call for continuing contributions from both productivity and pricing." And for viewers at home, he added: "In particular, we expect our list-price increases and higher merchandised price points to be increasingly reflected at retail."

The market didn't like the outlook much, at least after the stock's recent run. General Mills lost 0.4% on the day although it had climbed 8% in December ahead of the earnings report.

Not all the news on inflation was bad, however. Morgan Stanley analyst Karin Kimbrough suggested that some of the pressures forcing commodity prices higher in 2004 are likely to abate at least somewhat next year. Slightly weaker growth globally and in China should at the least reduce the rate of price increases, she writes. And additional Fed interest rate hikes will help contain inflationary pressure in the U.S.

After all, the prices of intermediate and raw materials for producers have been rising significantly faster than consumer prices for all of 2004. The intermediate good producer price index rose 10% over the past 12 months through November and 26% for raw materials. The consumer price index for the past 12 months rose 3.5%.

Thursday will bring the release of Alan Greenspan's preferred inflation gauge, the personal consumption expenditure component of the November income and consumption report. Analysts expect a 0.3% rise. That ought to be just enough to keep Alan and company on track for their next rate hike in February.

In keeping with TSC's editorial policy, Pressman doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

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