Take some better-than-expected housing data, a couple of beat-and-raise blue-chip profit reports and voila: the blue-chip index has recovered all that it shed and then some. Forget hitting a new 52-week high Wednesday -- stocks today were up nearly 200 points and the Dow is back at levels not seen since June 2008.
So what caused the rout and seemingly miraculous recovery? Speculators move the market, not investors. (Hardly a news flash, I know: Reminiscences of a Stock Operator has been around since, like, 1923.) And speculators or traders or whatever you want to call them have, by evolutionary necessity, developed nervous systems similar to those found in the kind of small woodland creatures most often eaten as prey.
So when Dow components Intel and United Technologies produced some sweet Street-beating numbers and existing-home sales had a little upside surprise, well, there you go -- the risk-on trade went back on.
That's why the market didn't tank Monday because S&P said the federal tab is getting dangerously out of whack. Rather, traders freaked when it looked like S&P might be draining the reporting season punch bowl.
"If anything, the stock market sold off [Monday] because stocks trade on headline risk these days as earnings are just starting to roll in," says Cort Gwon, CEO and Managing Partner at HudsonView Capital Management.
The market, after all, takes earnings a lot more seriously than the ratings agencies. Let's face it: ratings agencies are usually late to the party, Gwon says. Just think of the cat-like quickness they exhibited on such inconsequential little matters like, oh, mortgage-backed securities -- or Portugal or Greece.
"The rating agencies should have downgraded the U.S. a couple of years ago when deficits ballooned from the financial bailout," Gwon says.
But, hey, it's earnings season, people. Speculators can't be bothered with long-term creditworthiness when matching (or, God willing, actually beating) this quarter's benchmark is so desperately dependent on a steady stream of beat-and-raise profit reports. And thanks to Intel, UTX, IBM and Yahoo, the party, for now, is back on.
Before we get carried away with the latest market action, let's go to the wayback machine to help anyone who was shocked -- shocked! -- by what S&P had to say a couple days ago: A while back some guys set up some boring commission or something to try and get a handle on all these icky fiscal problems. It was called the National Commission on Fiscal Responsibility and Reform. They even set up a Web site! They also published this really important report back in December, portentously called The Moment of Truth.
Nah, I didn't read it, either.