Wall Street Greek: Stock Market Catches Its Second Wind

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Stock Market Second Wind

The stock market recovery of 2009 found its second wind last week, as it was lifted by a handful of positive earnings reports and a note of approval from one of its harshest critics. Influential analyst Meredith Whitney injected the market with life on Monday morning when she raised her view on Goldman Sachs and predicted the company's quarterly outperformance that played true the next day. Further good news from Intel on Wednesday, and a note of support from Economist Nouriel Roubini helped to reinforce confidence and buying in stocks. The Dow Jones Industrial Average posted its strongest weekly gain since the week ended March 13, soaring 7.3% last week. The S&P 500 Index and Nasdaq Composite concurred, as they rose 7.0% and 7.4%, respectively.

Meredith Whitney is a well-known and influential voice on Wall Street. On Monday, she was spot on with her buy recommendation on Goldman Sachs, and her forecast for significant quarterly outperformance the next day. Goldman, one of the market share beneficiaries of its competitors' demise, once again illustrated its trading savvy on Tuesday morning. Traded via NYSE symbol GS, the company posted revenues of $13.8 billion for the closed quarter, up from $9.42 billion in the prior year period. Goldman's EPS came in well above analysts' consensus view as well, but the shares held steady after having risen 5.3% the day before on Ms. Whitney's preview.

The market found further drive though when Intel beat analysts' EPS consensus by 125%, and reported that it was shaping up to post revenues of $8.5 billion for its current quarter, versus expectations for just $7.8 billion. On Thursday, the masses, hungry for more reason to buy stocks, took the words of Nouriel Roubini as the all clear to do so. However, Mr. Roubini later refuted the interpretation of his comments, saying he had not altered his forecast at all. He still saw five more months of recession... The market could care less about current conditions though, as it is a forerunner of the real economic environment. In fact, it is regularly described as a six-month forerunner, so the gates had been opened nonetheless, and off to the races it was.

Before the week was over, several other high profile so-so reports managed to support stocks until General Electric (NYSE: GE) noted severely lower revenues on Friday. However, rather than consolidating gains, the euphoric market simply held steady to close the week. A strong Housing Starts figure for June went far in offsetting GE's bad news. Housing Starts rose 3.6% above the revised May figure, and Building Permits jumped 8.7%, giving some life to the shares of beaten down homebuilders as well.

This "Second Wind" the market found was not unforeseen by your favorite Wall Street tracker, as noted in our regular weekly market preview on the blog. The big question now is, does the market have enough gusto to keep it up in the week ahead. This coming trading period offers many more earnings reports, including big ones from Dow components Caterpillar (NYSE: CAT), Merck (NYSE: MRK) and DuPont (NYSE: DD). The economic slate is a light one, but includes the semi-annual testimony of Federal Reserve Chairman Bernanke before the House Financial Services Committee and the Senate Banking Committee on Tuesday and Wednesday. Leading Indicators is also due this week, and may offer insight into how long this recession will drag on, clearly a market-moving bit of information as well. For all of the week's events, see our forthcoming "Week Ahead" article.