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"Goldilocks" was back on traders lips Thursday as earnings anxiety eased while the beige book balanced out Wednesday's


minutes in terms of rate hikes and inflation expectations.

The Federal Reserve's beige book indicated that "economic activity continued to expand" since the last report in September, and just two Fed districts say growth "cooled" from the prior month compared with five in September. The Fed reported that price pressures were contained but emphasized the tight labor market more than it did in the last beige book report. Still, any concerns about wage inflation were swept aside by Wall Street's rising sense of optimism.

"There is a perception around that we may have seen the highest levels of crude oil for a while," says Michael Driscoll, director of listed trading at Bear Stearns. "And if we're not looking for rate cuts, we've seen the end of rises."

Such sentiment helped the

Dow Jones Industrial Average

add 0.8%, or 95.57 points, to finish at another record close of 11,947.70. The Dow also hit a record intra-day high of 11,959.63.


S&P 500

added 0.95% to close at 1362.83 at a new five-plus-year high, and the

Nasdaq Composite

finished up 1.6% at 2346.18. Gainers led losers by more than 3 to 1 in both

Big Board

and Nasdaq trading, and volume was solid.

Driscoll notes that the market has the characteristics of a classic year-end rally where portfolio managers and individual investors who have stood on the sidelines are chasing performance. "The longer it lifts, the better it looks," he quips, noting that with the S&P 500 returning 9.18%, the Dow returning 11.48% and the Nasdaq returning 6.39% year to date, some people have to scramble to catch up.

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These performance-chasers might be buying retail and financials, but they could be dipping their feet back into the old market leadership such as basic materials, transports and industrials, which show signs of life. The shift is bullish, says John Roque, senior vice president and market technician at Natexis Bleichroeder.

"When former leaders come back to lead, the market is usually in pretty good shape," he says. "When they become laggards, you have difficulty," which is what happened in the spring and through July.

It may take time for the old leaders to take the bull by the horns, but that doesn't really matter as long as the bedrocks of the market -- financials and the consumer -- steer the herd.

"At 22.5% of the S&P 500, the financials don't have to lead, they just have to not fail," Roque says.

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Led by

Morgan Stanley

(MS) - Get Morgan Stanley (MS) Report

, the financial sector reversed some of its angst-ridden selling on Wednesday, which came largely from

Legg Mason's

(LM) - Get Legg Mason, Inc. Report

earnings warning. The asset-management firm shed 17.2% Wednesday and inched up 0.75% on Thursday.

"There might be a tiny problem with Legg Mason, but others in the asset-management space look good," says Louise Yamada, director of technical research at Louise Yamada Technical Research Advisors. She points to

Franklin Resources

(BEN) - Get Franklin Resources, Inc. (BEN) Report

in particular, which gained 1.67% Thursday and is up 24% from its July low.

Bank of America's

(BAC) - Get Bank of America Corp Report

announcement Wednesday that it would offer free trading to some of its customers put a dent in the online brokerage stocks, but


(ET) - Get Energy Transfer, L.P. Report


Charles Schwab

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TD Ameritrade

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regained some of Wednesday's losses.

The brokerage industry remains a shining sub-sector, as shares of

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report


Lehman Brothers

( LEH) remain stellar examples of strength despite concerns about an economic slowdown. Goldman has gained 22% from its September low, and 29.5% from its July low; Lehman has advanced 22.7% from its recent low at the end of August, and 26.6% from its July low.

Broadly, the Amex Securities Broker/Dealer Index added 1.83% on the day, while the S&P 500 Financial Sector Index gained 0.53% on the day.

Also leading the push to the Dow's new high Thursday were shares of


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(BA) - Get Boeing Company Report



(INTC) - Get Intel Corporation (INTC) Report



(MSFT) - Get Microsoft Corporation (MSFT) Report

, which all gained over 2% on the day.

McDonald's added 2.4%, and reached a seven-year high on its strong earnings and upbeat guidance. Indeed, Wednesday's dark clouds lifted from over earnings season Thursday as

Yum! Brands

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added 8.26% on news of its strong third quarter and higher forecast for the full year.


(COST) - Get Costco Wholesale Corporation Report

, too, reported strong earnings, sending its shares up 7.65% on the day.

These companies' strength reflects the U.S. consumer's resilience in the third quarter. Consumer spending has sustained the retail and consumer discretionary stocks despite worries about the waning housing market. Due in part to declining energy prices and lower interest rates in August and September, retailers reported a strong back-to-school shopping season which is expected to trickle into the holiday shopping season.

The government's report Thursday that the U.S. trade deficit climbed in August to a record $69.9 billion highlights the consumer spending phenomenon. Exports increased somewhat, but imports jumped 2.4% from the prior month, keeping the trade gap wide. The S&P Retail Index added 1.5% Thursday to a record close of 501.91.

When a record-setting trade deficit is interpreted as "good news" for stocks and the economy, you know the bulls are in control.

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


to send her an email.