Wall Street has been hankering for signs that the economy is slowing, and much of the recent data have indicated that it is. After all, getting the Fed out of the way is the key to avoiding a hard landing. So, when May retail sales were reported Tuesday as having been much weaker-than-expected, and with April's data revised lower, traders jumped for joy -- for all of a few minutes.

Traders did a double take after

Sanford Bernstein

downgraded

Hewlett Packard

(HWP)

and cut numbers, as thoughts of what slower economic growth might mean for profits came to the fore. Things are always skittish during preannouncement season, but I was quite surprised that the market's response was as violent as it was. Well, if the

Philadelphia Stock Exchange Semiconductor Index

, or SOX, can get pounded for 5% one day and then run up 5% the next, I guess anything's possible.

Perhaps there was some nervousness about this morning's

Consumer Price Index report after

New York Federal Reserve

President William McDonough said that the economy is "beginning to exhibit signs of imbalance and strain." (And energy prices continued to soar.) However the Fed Head himself,

Alan Greenspan, sounding almost like a toned-down Larry Kudlow, gave an afternoon speech that was about as bullish as one could have hoped for.

Mr. G's talk was focused on his belief that a secular change in productivity growth due to technology, and its implementation throughout the economy, has indeed occurred. I didn't even see one use of the word "imbalance" (although I only scanned the text), which has been in virtually all of his comments over the recent past. Coming from a central banker who's intent on reining in the economy, his words couldn't have been much more bullish. And yet, the market still languished well after the text of his speech was released. Go figure.

I was beginning to wonder about what a negative response to further signs of slowing and a bullish chat by Mr. G might imply, since how the market responds to news is more important that the news itself. However, as I sped to

CNBC's

studio, traders did double take number two and spurred the market on to a healthy gain in the final hours. In a market that's been as volatile as any of this generation, it's not often that traders have had two chances in one day to step up to the plate, and it may be some time before it happens again if the CPI is inline.

The

Dow

, even with the weight of Hewlett Packard's 7-point hit, gained 58; the

S&P 500

rallied 23; the

Nasdaq Composite

was up 83; and the

TheStreet Recommends

Russell 2000

was 5 points higher. Mega-cap techs led the way as the

Nasdaq 100

surged 127 or 3.5%. Breadth was positive by 3-2 on the

New York Stock Exchange

, but only marginally positive on the Nasdaq. Volume remained subdued, although it did improve from Monday's paltry level on the Big Board.

Yield curve-flattening trades appeared to be unwound as the short end improved, while the long end weakened. Curve steepening indicates diminished expectations of a Fed move in two weeks, and the bonds may have also been hurt by the $0.82 per-barrel jump in July crude to $32.56.

Apart from the tech darlings, including biotechs, the day's big winners were the drugs and retailers. It's a bit ironic that retailers would fare so well with sales slowing for the second consecutive month, but it makes sense. As I mentioned yesterday, the selling may have been a bit overdone, and if one expects a "soft landing," many in the group should do just fine. Drug stocks generally work in a slowing environment, but perhaps a growing notion that George Dubya has the upper hand in the presidential race may also be an important factor.

Other defensive issues also did well as consolidation is likely. Financial stocks also posted solid gains, led by the broker/dealers and insurance stocks. Even with sharply higher prices, energy stocks were little changed. However, rising fuel costs weighed on the airline and auto stocks. Cyclicals in general were lower as the economy shows signs of slowing.

News that the entire appeals court wants to hear the

Microsoft

(MSFT) - Get Microsoft Corporation (MSFT) Report

case helped the stock in afterhours trading and might keep a fire lit under the tech sector. (It's hard to imagine that the

Supreme Court

will circumvent the appeals court after it's made it clear that they're anxious to hear the case.) Looks like Judge Jackson might have to do a double take.

Reports that

Vivendi

will pay $70 per share for

Seagram's

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may also help the tone of the market if the CPI is in line. It will be interesting to get a read on the Fed regions this afternoon when the

Beige Book is released, but a benign inflation report should be enough to get the market through the recent consolidation. With more warnings almost certain in the weeks ahead, the market might still be a bit choppy going forward, but the likelihood that the Fed is about done tightening should lead to at least a decent summer rally.

Bill Meehan is the Chief Market Analyst for Cantor Fitzgerald, a Manhattan-based institutional trading and research firm, and writes for the Cantor

Morning News. Prior to that, he was a market analyst for Prudential Securities. At time of publication, Meehan held no positions in any stocks mentioned in this column, although holdings can change at any time. He appreciates your feedback at

commentarymail@thestreet.com

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