Is the Rally True? Does It Matter?

Stocks look poised to continue moving higher. Our leading indicator for investor expectations, oil prices, is up over $70 a barrel.
Despite the still-compelling argument that the economy is staging a tepid recovery that will take years to gather steam, and even though many feel that housing prices and unemployment have not yet bottomed, stock prices are clearly showing that investors believe that the financial crisis is past.

Stocks React to Q2 GDP Numbers?

Today was the big one. Say what you want about yesterday’s rally, the reaction to this morning’s 2Q GDP number should be expected to influence trading going forward. 
Now, I’m going to let TradeMaster Jason Cimpl’s morning commentary to his traders provide the in-depth analysis to the GDP number:

More Correction Talk

Stocks have traded in a pretty tight range over the last several sessions. There’s been an appearance of weakness, and some comments from talking heads that a correction is coming, or may have started. It’s sure not looking that way today. 
Stocks are big in the early going. The sell-off in China I mentioned the other day has reversed. All the talk of an imminent overheating of China’s economy now sounds like a deliberate attempt to work stocks lower so dips could be bought. 

There should be no doubt that games are being played right now.

Chinese Stocks Drop 5% Overnight

With the exception of the Nasdaq, the major indices finished yesterday with slight losses. And it looks like an even money bet whether they’ll finish in the red today. We’ve seen an unlikely move over the last two weeks. The S&P 500 has made gains in 9 of the last 11 sessions and moved 11.3% higher. Volume hasn’t been especially strong during this move, but it is summer. Volume is always a bit lighter in the summer.

Great Earnings Driven by Cost-Cutting, Not Growth


Wow. Huge rally for stocks yesterday. All the major indices have now broken above critical resistance levels. For the S&P 500, that level was 956. 
The question for investors now: Is this a sustainable move, or are we experiencing some kind of a blow-off top? 
The reason I ask should be obvious. Corporate earnings have come in better-than-expected virtually across the board so far. Only 16% of the S&P 500 that’s reported so far has missed expectations.


Outlook for Company Profits Questionable for Remainder of 2009

The steady march of positive earnings reports continues to move stock prices higher. Except for a select few, revenues aren’t growing. But profits are. That obviously can’t continue, because earnings growth from the recent quarter is largely a result of cost-cutting. Now, without a rise in revenues, earnings growth will stagnate. So will stock prices, if we’re lucky. Prices could also move lower…

AAPL, YHOO, and USB Up On Earnings Reports


Fed Chief Ben Bernanke went before Congress yesterday to reassure lawmakers that he has an exit plan for his inflationary monetary policies. And apparently the markets were soothed by his plans, because everything rallied – bonds, stocks and the U.S. dollar. 
Most importantly, Bernanke has been pretty adamant that inflation is not a threat right now. Prices are still falling for homes and commercial real estate. Demand for oil is down. Unemployment is rising. None of these conditions suggests that more money will be entering the economy in the form of spending.


CAT Up on Earnings Report as Market Extends Rally

Caterpillar (NYSE:CAT) is up huge this morning after it blew away analysts’ earnings estimates for the 2nd quarter. Caterpillar is an important proxy for global growth because it sells so many machines overseas. So when it reports earnings of $0.72 a share when it’s only expected to make $0.22, it seems like a big deal.