The market is on track to gain more than 4% for the week barring a sudden drop in the final hour of today’s trading. Even more important to those technical followers, the Dow is set to break the downward sloping trendline since last October and S&P 500 is going to challenge the key 1400 level for the first time in three months. Generally positive earnings results contributed to today’s rally. After GE’s disappointment last Friday, investors’ expectations for this week’s earnings were lowered dramatically and even a slight miss in the Citi’s results was considered a plus and the stock is currently traded higher by more than 6%. Google’s shareholders, meanwhile, are rewarded with an incredible 20% single-day gain after the company beating the lowered expectation.
Financials, industrials and technologies are noticeable winners of the day. Commodities, on the other hand, pulled back a little bit after a sudden strength in the US dollar, which is partly due to lowered expectation for rate cuts in the next Fed meeting. For the week, the US dollar advanced 3% against the yen and gained almost 1% against the euro after touching a new record low earlier in the week. Treasuries continued to be sold off and the yields on the 2-year note jumped almost 50bps for the week, the most since Nov 2001. The sell off in treasuries may show that the worst of the credit crisis is indeed behind us.  

The market ended the day essentially flat, which was not bad at all given the big rally we saw yesterday. Even better, the market held up very well despite relatively bearish economic news and worse-than-expected earning results from Merrill and Pfizer. It shows that the recent rally may have legs.
Start with the weekly initial claims. The number for the week ending April 12th came at 372K, slightly below economists forecasted. The previous week’s number, however, was revised downwards by 12K. The continuing claims increased 26K to 2.984 million. Although the weekly claims are still below the psychological level of 400K, the odds are it will be breached sooner rather than later. In a separated report, the Leading Indicators advanced 0.1% in March, matching with expectation. The biggest disappointment came from the Philadelphia Fed Index. Economists expected a reading of -15.0 and it came at -24.9. The market had wished for a positive surprise given the benign reading in the NY Empire State Index on Tuesday but apparently that was just a wishful thinking.
Financials were one of the few sectors posting a gain for the day. Transportation and Technology were among the noticeable losers. The former was down mainly due to a disappointing earning report from Con-way, a trucking company while the latter was dropping in sympathy with the 6%+ drop in the Europe Tech Index, which was mainly due to a profit miss from Nokia. After the bell, Google’s earnings handily beat both top line and bottom line estimations and should give technology an early boost tomorrow, which happens to be the option expiry date. Treasuries continued to be sold off as investors reasoned the worst of the crisis was over. The CRB commodity index inched higher while the US dollar also gained some ground against the yen and the euro. So far during this busy earnings week, the market managed to hold up really well but it still has one last test to go through, which is earnings from the Citigroup that is scheduled to be released tomorrow morning.

The market treated bulls with a good Wednesday. All three major indices ended the day higher by more than 2%. The Nasdaq, which lagged the broad market recently, advanced 2.8%, the best among the big three. Even more impressive, the Dow Transportation Average hit a new high for 2008 and has gained 11% year-to-date despite last week’s earnings warning from UPS. The economic news of the day was mixed: Both headline and core CPI numbers matched with expectation; Housing Starts and Building Permits both missed expectation and were at the worst level since 1991; Industrial Production came better than expected while the Fed’s Beige Book indicated nine of the twelve Fed Districts have seen a slowdown in economic activity. On balance, the economic news was neutral at best. But it was really the positive earning results from Intel, JP Morgan and Wells Fargo that triggered today’s rally. The market sentiment entering into this earnings season was so low that even in-line results were considered good news. 
All 10 major sectors registered a gain today and commodities again became the winner of the day. The CRB commodity index continued to move higher and is just inches away from the record high reached on Mar 13th. Interestingly, the VIX index closed at the lowest level in 2008 while the new highs list on NYSE hit the highest level so far this year. Treasuries were sold off sharply as investors reasoned that better returns can be found elsewhere. The US dollar hit a new historical low against the euro as higher than expected inflation in that region erased any hope for a rate cut in the near future. After the bell, IBM’s earnings results handily beat expectation but Merrill’s results along with several economic reports tomorrow morning can easily change the direction of the market. So play with caution!

All three major indices ended the session higher by 0.5%. Similar to yesterday, trading activities were quite muted ahead of several significant earnings reports. The economic news of the day was quite mixed. The headline PPI number for March increased 1.1% vs. 0.6% expected. Core PPI, which excludes volatile food and energy prices, increased 0.2%, matching expectation. The NY Empire State Index, which provides an early sign to the health of manufacturing activities around the country, jumped to positive 0.6 from negative 22.2 in the previous month. Economists expected a reading of negative 17. In addition, the Net Foreign Purchases for February increased to $72.5 billion, higher than consensus of $60 billion.  
Financials finally broke its 5-day losing streak and ended the session modestly higher. Commodities once again became the winner of the day. The CRB commodity index advanced another 1.5% and is only 1% below its all-time high reached on March 13th. Both crude oil and gasoline hit new historical highs. Inflation clearly is not going away anytime soon - we may see some upside surprise in tomorrow’s CPI report following a flat reading in the previous month. Treasuries ended the day lower with the yield curve further steepened. The US dollar was traded higher again the yen and the euro but was mixed against others. After the bell, Intel’s earning report provided investors with some relief that it didn’t lower its sales forecast for the next quarter. But investors probably should hold their enthusiasm for the time being as several important economic reports along with earnings from financial bellwether JP Morgan are scheduled to hit wire before tomorrow’s opening bell. In addition, China is ready to report its Q1 GDP at 4:30am ET tomorrow and there is a possibility that the actual number may miss expectation as both exports and M2 have slowed quite materially recently.

The market started the busiest week of the earning season in a rather lackluster tone. The Dow swung around the unchanged level for most of the day before ending the session with a loss of 23 points. The Nasdaq, the worst performer of the three, had a loss of 0.6%. Wachovia became the latest financial firm that posted disappointing Q1 results while news on the economic front was more or less in line with expectation. 
Financials continued to lag behind the broad market and it has dropped for 5 consecutive sessions. It seems that analysts on average are too optimistic about Q1 earnings for this group. We are going to get reports from JP Morgan, Wells Fargo, Merrill and Citigroup throughout the rest of the week and it is very likely we may see more earnings disappointments. There is no question that Q1 is a tough one for many financial firms but the key is whether Wall Street is willing to look past it. We may have a better idea by the end of the week. Commodities, buoyed by advancing CRB commodity index, continued to do well. The US dollar was headed lower despite a short-lived rebound from the G7 statement over the weekend. Treasuries were drifting down with the yield curve continuing to steepen. Interestingly, banks remain cautious of lending to each other despite enormous liquidity injected by the Fed. In other words, the worst of the financial crisis may be over, but the road to recovery will be a bumpy one.