"You can't always get what you want," according to Mick Jagger.
But this stock market has a retort: "If you expect very little, you can get what you need, and it feels like what you want."
Expectations seem at the crux of this run to new highs. The earnings and economic data are beating analysts' and economists' forecasts, helping drive several stock market indices to within a hair of all-time highs.
Dow Jones Industrial Average
brushed past its all-time high Tuesday but ended just shy of the record, up 0.4% at 12,773.04. The record closing high was 12,786.64 on Feb. 20. The
made another new six-and-a-half-year high, rising 0.2% to close at 1471.48, while the
finished down 0.1% to close at 2516.95.
The small-cap Russell 2000 closed just off its all-time high from Monday, and the NYSE Composite also marked yet another all-time high Tuesday.
Economic data was encouraging, even intoxicating, to investors as the prospect of the so-called Goldilocks economy floated its way back onto Wall Street. The twin axes hanging over the stock market's head, housing and inflation, offered relief Tuesday. Housing starts and building permits both increased 0.8% in March, which many attributed to better weather.
But however you slice the data, it was not the much-awaited other shoe dropping to reveal more calamity in the housing market. That said, most economists took pains to note that inventories of homes remain elevated and that the success of the spring selling season remains unknown.
On inflation, the data batted back the notion of
rate cuts. Consumer prices rose 0.6% in March, in line with expectations, and core CPI rose only 0.1%, bringing its year-over-year rate to 2.5% -- the upper end of the Fed's comfort zone but down from 2.7% in February.
Inflation expectations and bond yields dropped in concert with the data. The 10-year bond yield fell to 4.68% from 4.74% Tuesday while the 30-year bond yield slid to 4.84% from 4.89%. Likewise, the risk premium on inflation-protected bonds fell to 2.41% from 2.45% on Monday, "a fairly large decline for a single day," writes Tony Crescenzi, fixed-income strategist at Miller Tabak and
contributor. This premium indicates what investors believe will be the pace of inflation for the next 10 years.
"The recent weakness suggests that year-to-year rates aren't likely to draw the Fed into rate hike mode before the fourth quarter," writes Michael Darda, chief economist at MKM Partners. He believes inflation will turn back up based on indications of persistent excess liquidity in the financial system, high gold prices, soaring commodities prices and a weak dollar.
For many traders, though, the question is when the rate cuts, not the rate hikes, will come.
"We'll get the higher high here and maybe a higher low after that. Then the market may move back up in June, and July will bring a push for a summer rally," says Marc Pado, chief market analyst at Cantor Fitzgerald. "But by then the market will be in rate-cut anticipation mode."
Pado believes the recent rally and Tuesday's climb are due to premature excitement over earnings season beating expectations.
But the early reporters in each sector may be catching the best mood in the market. As the season wears on, earnings beats could be met with less surprise and therefore act less like a tide that rises all boats. As Bank of America's chief strategist Thomas McManus
has said, the early announcements are met as positive surprises. But he warns that the voices of the many mediocre ones mean more in the end than the loud voices of the few marquee stars.
Thus far, early birds are catching the wave.
better-than-expected earnings Monday were due in large part on the back of its capital markets and wealth management businesses. The report boosted the financial stocks across the board Monday. But as Pado says, "That card was played."
It will be harder, he argues for Citi's competitors to inspire a similar reaction.
reported stronger-than-expected earnings Tuesday but revealed pressures from subprime borrowers, and shares fell 0.7%.
was a big loser among S&P 500 members, down 5.6%, after reporting results that missed expectations amid falling loan issuance.
About 17% of financial companies have reported thus far, and in aggregate, the sector is beating expectations by 10%, according to Thomson Financial. At the end of earnings season, the S&P 500 typically beats expectations by 3.2%.
dropped 1.5% in the session ahead of its earnings report. WaMu
beat expectations and jumped 2.5% in post-close trading.
In other post-close developments,
better-than-expected results while
surprised to the downside. IBM was up 1.8% in recent after hours trading, and Yahoo! was falling 6.8%.
decent earnings but light revenues and lackluster guidance. Still, the chip giant's stock was gaining 0.5% in after-hours trading, after gaining 1.5% during the session.
An early snapshot shows that earnings are off to a good start -- expectations accounted for. At the start of first quarter, reporting analysts lowered the bar to expect year-over-year growth at 3.3%. With about 10% of the S&P 500 having reported, the year-over-year growth is already a hair higher at 3.4%. And 75% of the companies that have reported have beaten estimates, compared with the historic average of 60% when all is said and done.
In keeping with TSC's editorial policy, Rappaport doesn't own or short individual stocks. She also doesn't invest in hedge funds or other private investment partnerships. She appreciates your feedback. Click
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