Updated from 7:40 p.m. ET to include additional commentary on economic data and Staples.

NEW YORK ( TheStreet) -- As stocks continue to churn higher in 2012, the prospects for another round of quantitative easing grow dimmer.

This, of course, could ultimately be a problem for those whose investment thesis for the new year was based on an expectation that the Federal Reserve would come through with another round of bond-buying in the first half.

The market is all smiles right now with the Dow Jones Industrial Average notching its first close above 13,000 since May 2008, the S&P 500 breaking through chart resistance at 1370, and the Nasdaq Composite sitting at levels unseen in more than a decade, poised to make its own run at a big, round number: 3000.

Year-to-date, the Dow is up 6.5%, the S&P 500 has risen 8.8% on a price basis, and the Nasdaq has advanced an incredible 14.7%, thanks in large part to Apple ( AAPL) and its 30% rise. Federal Reserve Chairman Ben Bernanke has remained fairly unflattering about the economy, but obviously investors running with the risk-on trade aren't seeing what he's seeing.

Then again, the one thing this rally has lacked has been volume, so maybe there's more pessimism out there than the year-to-date returns would seem to indicate.

Bernanke returns to Capitol Hill on Wednesday and Thursday to give his semi-annual testimony to Congress, and the expectation is that QE3 will remain on the QT for the time being.

"Based on his testimony at the start of this month and the lack of support evident in the minutes from the last FOMC meeting in late January, we don't anticipate that Bernanke will use his appearances this week to make the case for starting a third round of quantitative easing soon," said Paul Ashworth, analyst at Capital Economics, in commentary on Tuesday. "Nevertheless, we suspect that Bernanke will continue to take a pretty downbeat view on the US economic outlook."

Ian Shepherdson, chief U.S. economist at High Frequency Economics, is mostly of the same mind, but he does think the chairman will again make clear that more QE is an option if the economy does stall again.

"He Bernanke will grudgingly accept that some of the data are improving, but his tone will likely be downbeat, and he will again emphasize that the Fed is ready to add more stimulus should the economy fail to gain traction," he wrote on Tuesday.

There is some frustration on Shepherdson's part that Bernanke seems to be so reluctant to acknowledge the improvement in the data, especially when it comes to the job market, and he offered up an explanation.

On the one hand, he thinks politics is a factor with the central bank sensitive to being seen as patting themselves on the back with the unemployment rate still elevated at 8.3%. Another factor is a corner that Bernanke may have painted himself into.

"The other part of the answer is probably that Mr. Bernanke is worried that if he were to sound too optimistic, long Treasury yields would spring higher, potentially dampening the incipient recovery in the housing market and driving up long-term borrowing costs for large corporations," Shepherdson said. "Everyone now believes the Chairman is a super-bear, so he risks an outsized reaction if he shifts away from that position.

Coincidentally, Wednesday also brings the second long-term refinancing operation from the European Central Bank, which has been described as a kind of backdoor QE for the old continent. With a rousing reception the first time around, the stakes are pretty high here with the market seeming to take the position that more's the better when it comes to Europe's banks grabbing this cheap money for the next three years.

"The general (unscientifically determined) view seems that the larger than participation, the better for what are regarded as risk assets (equities, emerging market, peripheral bond markets, commodities), including the euro," wrote Marc Chandler, global head of currency strategy at Brown Brothers Harriman. "The consensus appear to be around 500 bln euros."

Chandler also said the fact that this is to be the last LTRO may be significant as well.

" W e should expect the markets to respond differently to what very well may be the last LTRO than the first," he said. "Buy the rumor, sell the fact may not quite capture this point, though that remains a risk as well. When a central bank begins an easing cycle, the market's response is typically different than when market believes it is the last move."

Stocks have a full head of steam right now but the pullback that most strategists are expecting to occur at some point could materialize if the Fed starts to lay the groundwork for taking QE3 off the menu. That's not likely to be part of Bernanke's message over the next two days, but it bears watching.

As for Wednesday's other scheduled news, Costco Wholesale ( COST) is reporting its fiscal second-quarter results before the opening bell, and the average estimate of analysts polled by Thomson Reuters is for earnings of 87 cents a share in the three-month period on revenue of $22.85 billion.

The Issaquah, Wash.-based warehouse retailer hasn't been a big participant in the broad market's year-to-date rally -- it's up just 2% in 2012 -- but the picture brightens going back further with the stock gaining nearly 16% in the past year based on Tuesday's regular-session close at $85.27.

With misses in four of the past eight quarters, Costco doesn't have the best earnings track record as far as analyst expectations go, but the business has stayed on track and an in-line revenue performance in this quarter would represent year-over-year topline growth of 9.4%, very good for such a mature company.

The sell side is a bit wary of the valuation with Costco shares trading at a forward price-to-earnings multiple of 19.5X vs. 11.1X for Wal-Mart StoresTICKER TYPE="EQUITY" SYMBOL="WMT"/> and 11.6X for TargetTICKER TYPE="EQUITY" SYMBOL="TGT"/>. Sixteen of the 27 analysts covering Costco are at either hold (12), underperform (3) or sell (1), and the 12-month median price target is at $89.

Oppenheimer initiated coverage of Costco on Monday with a perform (the equivalent of a hold) rating and a 12-month price target of $90. The firm sees the company as "one of the best run and most dominant retailers" but thinks investors should wait for a better entry point before jumping into the stock.

"Longer term we look favorably upon COST's ability to successfully open new clubs in the U.S. and abroad and utilize its ever-strengthening merchandising acumen to capture share," Oppenheimer said. "Nearer-term we view shares as potentially 'out of steam.' COST now trades at a multiple consistent with the high end of historical parameters."

The firm is bullish about Costco's potential to successfully open new stores, its ability to better monetize its membership base, and the potential for the company to expand its product offerings; but it thinks Costco as it stands now looks fully valued with very little slack to improve operations at its existing stores.

"The combination of store sales volumes tracking at new highs and an already lean cost infrastructure, over-indexed to variable expenses limits the opportunity for substantial EPS upside at the chain," Oppenheimer said. "We advise investors to await a pullback in shares."

Check out TheStreet's quote page for Costco Wholesale for year-to-date share performance, analyst ratings, earnings estimates and much more.

Another early report is office products retailer Staples ( SPLS), which is expected to deliver a profit of 40 cents a share on revenue of $6.45 billion in its fiscal fourth quarter. The stakes rose for Staples on Tuesday though as the stock surged 5% to close at $16 after rival Office Depot ( ODP) reported an above-consensus profit.

Staples' shares are still down more than 20% in the past year and the 20 analysts covering the stock are evenly split between bullish (5 at strong buy and 5 at buy) and bearish (eight holds and two underperforms).

Jefferies, which has a hold rating and $14 price target, is a penny above consensus with its estimate for a profit of 41 cents a share.

"We expect the North American business to show some improvement (maybe some upside), but upside may be discounted as an easy weather comparison likely helped," the firm said. "Europe exposure remains a risk to earnings, but this should not be a surprise to investors."

Finisar ( FNSR) is slated to report its fiscal third-quarter results after the close, and Wall Street is looking for a profit of 22 cents a share in the January-ended quarter on revenue of $245.2 million.

Shares of optical networking equipment company are up more than 30% so far in 2012, but the stock fell more than 5% on Tuesday ahead of its report after Jefferies cut its rating on Finisar to hold from buy, citing valuation and business risks related to the acquisition of Lightwire by Cisco ( CSCO).

The firm, which also cut its price target to $22 from $24, advised investors to consider rotating into JDS Uniphase ( JDSU) "given its relatively greater exposure to rebounding service provider capex." Jefferies' worry for Finisar is that it will lose business from Cisco as the Dow component integrates Lightwire technology with its product offerings.

"Our discussions with industry contacts suggest that Cisco plans to launch proprietary interfaces (in lieu of those provided by Finisar) for high-speed (40G/100G) interconnects using Lightwire technology by July 2013," the firm said. "Our checks suggest that this technology is potentially very disruptive, reducing the cost of 100G solutions by 90% while increasing platform density."

Jefferies estimates that roughly 5-10% of Finisar's revenue is at risk to this trend "but we're concerned that this portion of Finisar's revenue stream is among the fastest growing," it said. From a valuation standpoint, Finisar is a bit more expensive with a forward price-to-earnings multiple of 16.3X vs. 14.7 for JDS Uniphase.

Finisar has a pretty solid earnings track record, beating the average analysts' estimate in seven of the past eight quarters, and the sell side is mostly bullish with 9 of the 13 analysts covering the stock at strong buy (5) or buy (4) and the 12-month median price target at $23.75 vs. Tuesday's close at $21.79.

Check out TheStreet's quote page for Finisar for year-to-date share performance, analyst ratings, earnings estimates and much more.

Notables reporting before the opening bell include Accretive Health ( AH), Aircastle Ltd. ( AYR), Centerpoint Energy ( CNP), Frontline Ltd. ( FRO), Isis Pharmaceuticals ( ISIS), Joy Global ( JOYG), Liz Claiborne ( LIZ), Retailix ( RTLX), Sodastream ( SODA), Spreadtrum Communications ( SPRD), Weatherford International ( WFT), and Yingli Green Energy ( YGE).

The late roster features Air Methods ( AIRM), Alltel ( AT), Cal Dive International ( DVR), Casella Waste Systems ( CWST), Eagle Bulk Shipping ( EGLE), MBIA ( MBI), McDermott International ( MDR), Nektar Therapeutics ( NKTR), Petsmart ( PETM), and Rosetta Stone ( RST).

The economic calendar is pretty packed with the second estimate of gross domestic product for the fourth quarter at 8:30 a.m. ET; the Chicago purchasing managers index for February at 9:45 a.m. ET; weekly crude inventories at 10:30 a.m. ET; and the Federal Reserve's beige book report at 2 p.m. ET.

The consensus estimate is for GDP to remain at 2.8%, but HFE's Shepherdson is looking for a slightly higher revision to 3%, citing "stronger-than-assumed wholesale inventories and foreign trade numbers."

And finally, First Solar ( FSLR) shares were down 8% in Tuesday's extended session after the solar panel company disappointed Wall Street with a weak fourth-quarter report and a lower outlook.

With shares down 75% in the past year, one might think all the bad news was already priced into First Solar, but apparently that's not the case. The company missed Wall Street's profit view by 17.6% with per-share earnings of $1.26 a share vs. the consensus estimate of $1.53 a share, and said its performance was hurt by "an aggressive competitive environment, an uncertain regulatory environment, warranty-related charges, and restructuring costs."

Check out TheStreet's quote page for First Solar for year-to-date share performance, analyst ratings, earnings estimates and much more.

-- Written by Michael Baron in New York.

>To contact the writer of this article, click here: Michael Baron.
Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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