Reply #120: Here's the blather.

[ozymandius]

4:20 pm : The market closed higher for a second straight day, showing resilience in the face of renewed inflation fears, rising bond yields and record oil prices, as strong earnings across the board ultimately sidelined the bears. Before 8:00 ET, all signs pointed to the market adding to its biggest gain in nearly a year, as the bulk of earnings reports since yesterday's close either matched or surpassed Wall Street's forecasts. In fact, of the 12 Dow components reporting this week, the five blue chips posting results this morning all beat expectations.

Be that as it may, investors struggled throughout the session to find a silver lining, especially after today's higher than expected increase in core CPI countered yesterday's tame inflation read at the wholesale level. March core CPI rose 0.3% -- the largest increase in core prices since last March, inching the year/year increase in core CPI to 2.1% from 2.0%. Since nothing is more important than consumer inflation and incoming economic data remain the most important determining factors for Fed policy, Wednesday's inflation data rekindled the chance of two more rate hikes, underpinning a sense of nervousness in both the stock and bond market.

Even though the CPI report provided only one month of data, as alluded to by midday comments from San Francisco Fed President Janet Yellen, potential signs of a firming trend argued that yesterday's enthusiasm on Fed policy may have been a bit premature. When it was all said and done, though, the market's ability to avoid a logical pullback again reflected more underlying bullishness than we anticipated, especially as oil prices closed above $72 per barrel for the first time ever and the yield on the 10-yr note climbed back above 5.00% -- concerns that underscore our Neutral market view.

On the earnings front, United Technologies (UTX 62.80 +3.90) was the standout, beating estimates by three cents and boosting its FY06 outlook, which plays into our Overweight rating on Industrials. The sector also got a lift from General Dynamics' (GD 69.41 +2.96) solid report, which helped to offset consolidation in Honeywell (HON 43.53 -0.63) which hit a 52-week high yesterday ahead of its strong report. Providing even more market support was Energy, which was up 1.5% as oil prices gained more than 1.0% to $72.17 per barrel following an unexpected draw down in weekly crude inventories. Another strong earnings report from Grant Prideco (GRP 54.12 +4.70) -- a suggested holding in our Active Portfolio, was another source of sector support as it helped the Oil & Gas Equipment group extend its 26% year-to-date advance and underscored our Overweight rating on Energy.

Internet Software & Services (+3.4%) -- the day's third best performing industry group after Yahoo! (YHOO 33.54 +2.24) reported strong results -- helped the Nasdaq outpace its blue chip counterparts but only enough to help the Tech sector finish relatively flat on the day. Also helping offset weakness in storage and hardware was strength in semiconductor. The latter group got a lift after Texas Instruments (TXN 34.45 +0.45) beat estimates and boosted guidance coupled with late-day gains in Intel (INTC 19.56 +0.17) ahead of its earnings.

The brokerage group got a boost after Jefferies (JEF 68.86 +5.27) posted a 59% jump in profits and E*Trade Financial (ET 26.86 +0.94) caught a bid ahead of its earnings report. A rebound in Multi-line Insurance, which had been the tenth worst performing S&P industry group in 2006 before Allstate's (ALL 54.82 +2.87) upbeat outlook, also helped Financial post a modest gain and offset weakness in rate-sensitive bank stocks. Treasuries, which showed a muted response to the FOMC minutes yesterday, gave way to selling pressure at the first hint of inflation persisting. The yield on the 10-yr note (-10/32) closed at 5.02%.

Health Care, however, was the biggest drag on the market as lighter than expected Q1 revenues from Amgen (AMGN 68.30 -2.67) and Pfizer (PFE 24.82 -0.11) offset a solid report from Gilead Sciences (GILD 65.13 +3.29).BTK +0.9% DJ30 +10.00 DJTA +0.5% DJUA +0.3% DOT +0.8% NASDAQ +14.74 NQ100 +0.4% R2K +1.1% SOX +1.8% SP400 +1.0% SP500 +2.28 XOI +0.9% NASDAQ Dec/Adv/Vol 1166/1800/2.13 bln NYSE Dec/Adv/Vol 1324/1956/1.75 bln