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The CPI report infused the

Federal Reserve's

timetable with a dose of uncertainty Wednesday, notwithstanding San Francisco Fed President Janet Yellen's comments on



The consumer price index met expectations by rising 0.4% in March, but core CPI, which excludes energy and food, rose by 0.3%, higher than the 0.2% predictions. The data were a bit of a buzz-kill for the market, which was drunk

Tuesday on the conviction that the Fed will stop raising rates after its 16th hike, which is expected May 10.

"A disappointing consumer price release for March injected new doubts into the issue of an imminent Fed pause," writes Peter Kretzmer, senior economist at Banc of America. Odds that the Fed will raise its fed funds rate to 5% on May 10 remain near 100%, while the odds that it will hike in June to 5.25% increased Wednesday to about 40% from about 34% Tuesday.

In conjunction, the price of the benchmark 10-year Treasury fell 9/32, its yield rising to 5.02%.

To the surprise of many, however, the stock market overcame the CPI data, the rising Treasury yields and the latest surge in commodities -- a nod to the strong corporate earnings. But it didn't dramatically extend the rally either. Tuesday "was not a breakout day," says Phil Roth, chief technical market analyst at Miller Tabak. "It was a modest up day in a maturing bull market."

Tuesday, major indices posted their best single-session gain since April 2005. Wednesday, the gains were quite modest for blue-chip indices while the

Nasdaq Composite

advanced 0.6%. The

S&P 500

spent most of Wednesday flirting with its recent technical resistance level around 1310 -- where rallies have stalled repeatedly this year -- settling up 0.2% at 1309.93

Gellin' Like Yellen

Maybe attempting a little mind over matter, Yellen said in an interview on


that she expects stable growth and that long-term inflation is "well contained." Yellen reiterated that she still believes the Fed may stop hiking rates soon, but added the ever-familiar caveat the Fed is data-dependent. Yellen said she is keeping an eye on any "surprises" that might tear the Fed away from this soft landing.

Although Yellen attributed rising commodity prices to strong global growth vs. inflationary pressures, one surprise could be commodities prices reaching the consumer pocketbook. Oil prices hit another record high over $72 per barrel Wednesday. The chief financial officer of mega-retailer

Wal-Mart Stores


noted Wednesday at a conference in Arkansas that rising fuel costs "dampen" its same-store sales, according to reports.

Meanwhile, gold set another 25-year high,

surging $12.70 to $636 per ounce.

Or maybe record corporate borrowing despite rising rates is surprising. U.S. investment-grade companies raised a record amount of money in the corporate bond markets in the first quarter of this year with $223 billion of debt issued, according to Thomson Financial Data.

Other indicators that inflation worries are lurking include the highest difference in risk premium in the past year between the 10-year Treasury inflation protected securities (TIPs) and conventional 10-year Treasuries, noted Tony Crescenzi, a

contributor and interest rate strategist at Miller Tabak. "The spread is now at 2.64%, indicating that investors believe that the consumer price index will average yearly gains of 2.64% over the next 10 years."

With signals like the TIPs spread, record high commodity prices, record corporate borrowing, massive M&A activity, it seems like Fed officials such as Yellen are asking market participants to ignore the inflationary elephant in the room.

One Good Day?

Whether or not the rally Tuesday proves to be just another "one and done" advance that doesn't have legs -- the latest in a series since Richard Fischer's "eighth inning" comment last June -- some say it is impressive the market didn't give back its gains Wednesday.

"The fact that we're extending Tuesday's gains is a surprise to almost every institutional trader I've spoken to today," says Ted Oberhaus, director of equity trading at Lord Abbett & Co. "The real story is the better-than-expected earnings reports. Equity prices react to other stimulus than swings in commodity prices."

Indeed, Wednesday's resilient showing was aided by earnings-related strength in big-caps such as




Texas Instruments



United Technologies


, although their gains were offset by weakness in


( MOT) and



in the wake of their results Tuesday evening.

In after-hours trading Wednesday



shares were recently up 3.8% after its second-quarter results beat expectations and



was up 1.6% despite offering lackluster guidance and merely in-line results. But fellow tech heavyweight



was down 5% after offering disappointing guidance.

A Strong Start

On the basis of results from companies in the S&P 500 that reported before the close Wednesday, combined with expectations for those that haven't, corporate earnings grew 11.6% in the first quarter, according to John Butters, analyst at Thomson Financial. At the start of the quarter growth was estimated to be 12.1%, he said.

So far, 100 companies have reported, with 64% beating estimates, 22% matching, and 14% below estimates. This season outpaces the historical long term average of 59% of companies beating estimates, 21% matching, and 20% coming in below expectations. The energy sector represents the strongest growth with 39% year over year growth. If you take energy out of the picture, corporate earnings have grown only 8% thus far this year, said Butters.

This week and next are peak weeks for earnings season. By the end of this week, 119 S&P 500 companies and 13

Dow Jones Industrial Average

components will have reported. Next week 141 more S&P 500 companies report earnings and 20 more Dow components.

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.