everything coming up roses
Everything's Coming Up Roses
By Liz Rappaport Markets Columnist 8/16/2006 5:56 PM EDT Click here for more stories by Liz Rappaport
Can Ben Bernanke control the weather too? As if on cue, this week's inflation came in soft, while industrial production and housing starts point to some weakening growth -- all making the Fed chairman look good, as he's probably uncrossing fingers and breathing a sigh of relief. But the character of Tuesday and Wednesday's stock market rally might be about more than the Fed's forecast that slowing growth will tame inflation. If investors are so gung-ho about slower growth, why is it that the cyclically sensitive sectors are leading the rally, as opposed to the defensive consumer staples and large-cap names? Traders may be betting on a third-quarter bounce.
"There is one problem with the idea that the rally is feeding into the economy slowing down and giving the Fed room to stop raising interest rates," says James Paulsen, chief investment strategist at Wells Capital Management. "It would be more convincing if the entire composition of the stock rally wasn't cyclical."
These cyclical rallies have been coming since month's end on better-than-expected retail-sales reports, a low four-week moving average for jobless claims, a narrower trade deficit and a 16% increase in second-quarter corporate profits, he says.
Wednesday's rally had all the markings of a bullish growth story.
The Dow Jones Industrial Average gained 0.9% to 11,327.12, bringing its two-day gain to over 2%, while the S&P 500 gained 0.8% to 1295.43, bringing its two-day gains to 2.2%. The Nasdaq Composite rallied 1.6% to 2149.54 Wednesday, bringing its two-day gain to 3.9%.
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