With the stock market on an impressive run over the past 6 months, many are wondering if a rally like this is sustainable. In the short term, stocks generally see a pull back after a rally like this, in which the S&P 500 has increased about 60% since the low point in the stock market on March 9^th. However, the stock market is driven by news and emotion and the news has been largely positive over the past several weeks, sustaining the rally and pushing the Dow Jones Industrial Average over 10,000 points for the first time in over a year.

The primary driver over the past few weeks has been positive earnings news. Because of the recession and the decline in consumer spending, expectations for most companies and industries have been fairly low over the past few quarter and the results have been consistently solid. The alarming trend is that, although many high profile companies are exceeding expectations on earnings, they are making money not by increasing sales but by slashing costs as they slow operations and layoff employees. Here are some of the factors moving markets in a positive direction right now.

- Technology Stocks: Over the past few weeks several high profile technology companies have reported strong earnings. Google, Intel, and Apple all easily beat expectations and generated revenues that were better than expected as well. Microsoft is releasing its newest version of its Windows Operating System. It appears that consumers, while pinching pennies, are not hesitating to upgrade on the technology front. Apple sold nearly 7.5 million iPhones and over 3 million Mac computers during the third quarter alone.

- Inflation: For months, worries over inflation fears have dominated headlines. People are predicting inflation of historic proportions, but so far prices remain under control. Consumers would be even more wounded if the prices of goods and services started increasing, so tempered inflation is good for consumers.

- Financial Stocks: The earnings reports for financial stocks haven’t all been pretty, but they have been sufficient to help restore some faith in banking and lending. The concern for most companies is that loan losses continue to hurt results each quarter. However, banking giants like Goldman Sachs and JP Morgan Chase are generating massive profits again, leading to controversy over year-end bonuses instead of concern about their ability to survive the credit crunch.

- Housing: For most people, their biggest investment is their home, and most people have seen their biggest investment lose somewhere between 20% and 50% over the past two years along with their other investment losses. Part of the reason money is flowing into the markets again is that people are finally getting past the idea that real estate is going to lose value forever. Housing sales and prices are reversing course in many areas and becoming positive news each month rather than negative news, giving investors much needed confidence.

- Cash on the Sidelines: Stock prices increase when there is more demand for stocks and with hundreds of billions of dollars still sitting on the sidelines after being pulled out of investments, those dollars are slowly but surely finding their way back into the market. There is still a mountain of cash that will eventually be invested, giving hope for stock prices to continue to rise. The owners of this cash are going to have the confidence to invest again eventually.

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