The stock market's resilience in the face of bad news earlier this week wasn't a fluke after all. Rather, it was a sign of the underlying bullishness that revealed itself in furious fashion Wednesday.

Despite a warning late Thursday by

Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

, news of two investigations into

Freddie Mac's


accounting, and a lackluster beige book survey, major indices rose early and finished with a flurry.

The market's ascent accelerated after the 2 p.m. release of the

Federal Reserve's

beige book survey, which said the U.S. economy "remained sluggish" in April. Rather than causing consternation, the report sparked celebration as investors anticipated the Fed will now ease by 50 basis points at its June 24-25 policy meeting rather than a mere 25 basis points.

Why equity investors continue to believe more rate cuts will cure the economy's ills remains elusive, especially considering 12 rate cuts from January 2001 until November 2002 proved to be no panacea. Perhaps rate cuts are merely the most obvious sign of the Fed's vigilance to fight deflationary pressures, which is what is really buoying financial assets.

"In fact, central banks have a number of other means at their disposal to stimulate spending should nominal interest rates hit the zero bound," Fed Vice Chairman Roger Ferguson said Wednesday, the latest in a series of such comments from central bankers.


Dow Jones Industrial Average

rose 1.4% to 9183.22, its first close above 9100 since July 1, 2002. The

S&P 500

jumped 1.3% to 997.48, while the

Nasdaq Composite

climbed 1.1% to 1646.02.

Regardless of why, faith in the Fed remains quite intense, as evinced by Wednesday's action.

"Cyclical stocks carried the day as players expect better growth and earnings in the third and fourth quarters, spurred by low rates," observed Scott Curtis, head of U.S. equity trading at Credit Lyonnais. (In other words, the "second-half recovery" story still compels.)

Indeed, the Dow's rise was powered by cyclical names such as


(BA) - Get Boeing Company Report



(CAT) - Get Caterpillar Inc. Report

, as well as


(IBM) - Get International Business Machines (IBM) Report

, which rose 2.8% after some positive comments from Merrill Lynch. (Big Blue is, of course, also sensitive to the economy but it's not considered a "cyclical" stock by most.)

TheStreet Recommends

Merrill Lynch also helped sustain buying pressure in biotech stocks by suggesting profit-taking in recent days provided an entry point. "Valuations remain well within the historical range, and window dressing into the end of the quarter should bode well for biotechs," Merrill analyst Eric Ende wrote. Fund managers often seek to secure better closing prices at month and quarter ends for their holdings by buying shares of names they already own. Known as window dressing, the practice isn't illegal but doesn't have much to with fundamentals either. The Amex Biotech Index rose 3.2%.

Although the Philadelphia Stock Exchange Semiconductor Index sagged 0.6% under the weight of TI's warning, momentum was sustained in other recent favorite groups, most notably homebuilders. The S&P Homebuilding Index leapt 7.1% on the promise of still-lower interest/mortage rates and better-than-expected results from


(LEN) - Get Lennar Corporation Class A Report

late Tuesday. Lennar rose 8.2% while Texas Instruments lost 7.5%.

About 1.5 billion shares traded on the


and 1.9 billion in over-the-counter activity, still down from last week's levels but up from Monday and Tuesday. Advancing stocks bested decliners by 23 to 9 in Big Board trading, where new 52-week highs trounced new lows 415 to 5, and by 3 to 2 in Nasdaq action, where new highs led 195 to 7.

Treasury prices rose earlier in the day on anticipation of a Fed ease but faded in the afternoon as stocks soared and the government sold $15 billion of five-year notes at record-low yields. The price of the benchmark 10-year note fell 8/32 to 102 8/32, its yield rising to 3.21%.

Not All Bull

Wednesday's overall advance occurred in the wake of's

Investors' Intelligence

survey showing the lowest level of bearishness since April 1987, at 16.3% from 20.7% the prior week. Bullish sentiment rose to 58.7% from 56.5%.

Some observers declared the sentiment data, often viewed as a contrarian indicator, to be reason enough to sell shares. Quite clearly, however, bullish sentiment is carrying the day -- certainly on this day.

"I still think the overall market is attractive," said Thomas McManus equity portfolio strategist at Banc of America Securities. "We're in a new bull market cycle. We bottomed in October and the March low was a successful test."

McManus grew increasingly more bullish from June of last year until February 2002, raising his recommended equity allocation from 50% to its current 75% during that period. As with

Bob Brinker, McManus showed no signs of backing off from the bullish ledge despite the market's recent runup.

Improving credit spreads augur improvement in the economy, the strategist said. Iraq being "in the rearview mirror" and people being "more capable of handling the risk" of terrorism further add to his optimistic view. (Separately, McManus added Boeing to his "fresh money focus list" Wednesday, replacing


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Despite the apparent rampant bullishness, there are still plenty of people betting against further upside. Midday Wednesday, Fari Hamzei of Hamzei Analytics observed a spike in the put/call ratio on Nasdaq 100 futures -- meaning excessive buying of defensive put positions -- to levels that have augured "explosive" moves to the upside in the past. Such was the case Wednesday, much as it was last week when the quantitative analyst made a similar observation, as reported


Finally, Bill Gross, managing director at bond-fund giant Pimco, was on


Wednesday afternoon reiterating his "Dow 5000" call. Gross hedged a little, suggesting Dow 5000 to 6000 represents "fair value," based on his view the S&P's dividend yield needs to approach 3% to represent competition for bonds on a "real return basis."

Either way, that's a pretty bearish call for a day in which optimism was seemingly rampant.

Bizarro World

If Gross' comments seem (


) grossly out of synch with current action, you should have been at the Denver Gold Group's San Francisco gold forum at the St. Francis Hotel, as I was much of Wednesday afternoon.

Rather than having faith in the Fed to revive the economy, conference attendees foresaw tremendous benefits for their beloved yellow metal from the Fed's largess. Most notably, these are due to expectations that Fed policies will continue to put downward pressure on the dollar over the long run.

Look for more about the conference in a forthcoming column. Meanwhile, gold futures rose nearly 1% to $355.60 per ounce Wednesday.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.