Up three days straight at Tuesday's close, a higher finish in Wednesday's session would mark the longest uninterrupted streak of gains since a five-day stretch that began Nov. 21.
"We've seen over the past week, and the last few days in particular, that the market has been particularly resilient. Investors have built a lot of pessimism into their market outlooks already, and are looking beyond the bad news," said Ken Tower, an analyst at Quantitative Analysis Service.
"The consensus now is that the central banks and the governments around the world through their stimulus effort will be successful in reviving the economy. Unfortunately, I don't think there is any evidence to support that view," said Tower.
The S&P's recent advance is less impressive when put into context, said Howard Silverblatt, senior index analyst, Standard & Poor's. "The bottom line is earnings are dwindling. And it's a lot worse than it looks, when you look year over year."
The S&P 500's financials companies have collectively lost $97.8 billion in earnings in the past five quarters, while in the prior five quarters, they made $262.5 billion. "That's a $360 billion turnaround, not a 360-degree turnabout, but billion," Silverblatt said.
"Growth in earnings, are lack thereof, drive the market," said Tower.
Excluding Wednesday's not-yet-complete session, S&P financials are down 74.5% from Oct. 9. That compares with the bursting of the tech bubble, when information technology shares saw their market valuation drop 82% from their peak, according to Silverblatt.
The S&P's battered financial sector, which last week fell to under 10% of the index for the first time since 1992, had been traveling back to 10.3% as of the close on Tuesday. At the end of 2006, before any of the current troubles roiling the sector had hit, the sector breakdown has financials representing 22.3% of the S&P.
On Wednesday, hopes for additional stimulus as well as a possible FDIC-run bank to soak up toxic assets had financials leading a broad-market rally. Equities maintained their gains after the Federal Open Market Committee said it would hold rates steady and affirmed its readiness to help financial markets. The Dow Jones Industrial Average was lately up 180.41 points to 8,355.14. The S&P 500 rose 26.27 points to 871.98, and the Nasdaq Composite added 52.67 points to 1,557.57.
"Obviously the news background is favorable today but this is just another rally in a bear market," said Elliot Spar, options market strategist, Stifel Nicolaus.
Tower believes the equity market is likely headed toward another rough patch in April and May, when the next round of debt contraction and difficult and difficult business conditions hits. "On a short-term basis, our outlook is very positive. On a six-month to 12-month basis, we're also positive. That leaves a gap in the middle, since short-term is only about two months long," the analyst said.
Investors entering the equities now should be willing to ride through an April-May decline in order to reach a rally in the second half of the year, Tower said. But even then, it's not clear the market will return to what has often been a traditional three-year bull market cycle. As Tower puts it, "The economic problems we have really are going to take a long time to fix."
By Kate Gibson