SAN FRANCISCO -- Looks like the bullish gurus had it right last night when they claimed negative sentiment would lead to market gains. Then again, the character of today's rally suggests investors didn't need much prompting to start buying.

The advance was broad-based: The Dow Jones Industrial Average rose 1%, the S&P 500 gained 1.3%, the Nasdaq Composite climbed 3.6% and the Russell 2000 rallied 1.8%. Additionally, advancers outpaced declining stocks by nearly 2 to 1 in New York Stock Exchange trading and 24 to 13 in over-the-counter activity.

Despite its democratic (small "d") leanings, the rally was clearly paced by growth stocks; the S&P Barra Growth Index rose 1.8% vs. an 0.8% gain for its cyclical counterpart.

Growth stocks were buoyed by nonnegative comments from Xilinx ( XLNX - Get Report) and analyst upgrades of Affymetrix ( AFFX) and Idec Pharmaceuticals ( IDPH). Those names inspired others in their respective sectors; the Philadelphia Stock Exchange Semiconductor Index rose 6.7% while the Amex Biotech Index gained 5.1%.

There's nothing wrong with such gains, and I'm not going to knock them (especially after having turned bullish in late March.)

Moreover, "nothing is screaming 'top' here," according to Steve Hochberg, co-editor of The Elliott Wave Financial Forecast in Atlanta. "Even if we top short term and pull back, it's going to be another solid buying opportunity."

The only indicator Hochberg expressed any concern about was the Chicago Board Options Exchange Volatility Index, which fell another 7.1% today to 21.22. That's the VIX's lowest point since early September 2000.

The newsletter writer does not foresee another so-called Fibonacci turn window until June 19-21. To review, turn windows are chart patterns used to identify when short-term trend changes will occur, not which direction the market will go. The theory being whichever direction the market is going heading into the turn date, it will reverse course thereafter.

Faithful readers will recall Hochberg has made some eerily good forecasts in recent months and deserves to be taken very seriously when he says (as he did today): "Nothing would lead me to believe this is the end of the up move" from the March lows. He forecast a 50% chance the Dow reaches a new high by year-end.

However, the tenor of today's advance gets to the heart of a debate I was having with Doug Kass in's Columnist Conversation.

Kass offered a thoughtful rationale for why sentiment about tech remains skeptical and that we are just now seeing the beginning of a thaw in investors' "general disinterest" in the group. In a nutshell, he offered as evidence skeptical tech strategists, the dearth of tech IPOs, outperformance of blue-chips vs. tech this year and last, as well as aggressive hedge funds having switched emphasis from tech to other "hot" areas such as energy.

Today's market action speaks for itself, but I countered with the ongoing tech obsession of most emailers, pundits and media outlets. The latter referred particularly to everybody's favorite financial television news network but includes this Web site as well.

Meanwhile, for those eager to jump back on the growth-stock gravy train, note that Hochberg continues to believe the Comp remains mired in a bear market, during which sharp rallies are to be expected.

Sins of the Father

Days like today drive cynics crazy, for it seems investors are (again) extrapolating even the most modest positive news into an excuse to buy with impunity. Or worse, that they're using bad news as an excuse to buy because of the promise of more Federal Reserve rate cuts.

There was plenty more bad news on the economic front today, most prominently a downward revision of April's factory orders and the May nonmanufacturing NAPM index hitting a record low.

The bond market rallied in reaction, with the price of the benchmark 10-year Treasury rising 17/32 to 97 30/32, its yield falling to 5.28%.

"People are looking for signs of improvement, but are having a helluva time finding it," said Donald Fine, chief market analyst at J.P. Morgan Chase. "The economy is very soft, particularly manufacturing, and the Fed will ease again if for no other reason than insurance."

That said, Fine does not believe the U.S. economy is currently in recession and foresees a "good likelihood" it may be avoided. There's been a significant slowdown, "but the world has not ended. People are talking recession too soon," he argued.

With its recent advance, the bond market is saying the economy is still soft, Fine observed. The stock market agrees but "is clearly not seeing a protracted recession. If it did, the stock market would be considerably lower."

The analyst admitted being unsure whether equities are getting ahead of themselves and looking too far into the future. "I don't think we know enough yet," he said.

I appreciate Fine's candor but respectfully disagree with another of his contentions; specifically, that inflation is not a threat.

The day's other economic report was a sharp downward revision to first-quarter productivity to a decline of 1.2% from down 0.1% previously. Analysts had expected the revision to be to a drop of 0.7%. The drop from a 2% gain in the fourth quarter of 2000 to a 1.2% drop is the biggest decline in productivity since the first-quarter of 1993, according to

Additionally, first-quarter unit labor costs were revised to a gain of 6.8%, the biggest increase since the fourth quarter of 1990. The consensus estimate was for a rise to 5.8% from the originally reported 5.2%.

The "productivity miracle" was key to the dampening of inflation pressures in the 1990s. Productivity waning while labor cost rising would -- along with other indicators such as money supply and the Consumer Price Index -- suggest those trends are reversing, something this column has long argued.

But Fed chairman Alan Greenspan has repeatedly declared that inflation is not a problem. He said so yesterday and on May 24 to the Economic Club of New York: "... the lack of pricing power reported overwhelmingly by business people underscores an absence of inflationary zest," he said.

The bond market was able to overcome today's productivity numbers because "Greenspan told them not to worry about inflation and he's the only economist that matters," Fine said.

In theatrical circles, what Greenspan is saying/doing about the inflation threat amounts to "suspension of disbelief." If it's good enough for the Fed chairman, little wonder that it's good enough for equity investors.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to Aaron L. Task.