The stock market's surprising show of strength Tuesday is convincing traders the rally still has a ways to go.
Tuesday's market started off slow, but broad-based buying took stocks higher right into the close, giving the market a 17 percent gain in the past week and a half. Many traders though believe the market's run is a bear market bounce and that it will soon run out of steam.
"We got through 770 (on the S&Ps). It was a great rally, I don't think we were expecting it at all after yesterday. The financials are still acting well, look at the XLF (financials ETF). There's definitely a little bit of optimism. I don't know how long it will last. I think we could be at a nice juncture, where we get a bit of a rally for a couple of weeks," said Todd Leone of Cowen. Leone said the pending quarter end, March 31, could be a positive for stocks.
The S&P 500 jumped 24 points, or 3.2 percent to 778. The Dow closed at its high of the day, up 178 points or 2.5 percent at 7395. The Nasdaq, fueled by tech, rose 4.1 percent to 1462. The S&P financial sector was the best performer, finishing up 6.5 percent. Consumer discretionary stocks were next, up 4.5 percent. Telecom and tech rose about 4 percent, and energy stocks, lifted by higher oil, climbed 3.5 percent.
"I think 800 (on the S&P 500) is really the next level we get to, and then we have to see," said Leone.
The Fed is the big news Wednesday when its two-day meeting ends with a statement at 2:15 p.m. CPI, consumer inflation data, is reported at 8:30 a.m.
- AIG 'Retention' Bonus Paid To Execs Who Already Left
- Grassley: AIG Execs Should Quit or Commit Suicide
- Summers: We'll Be Creative In Recovering AIG Bonuses
Investors (and all taxpayers too) should be interested in the House Financial Services hearing on AIG Wednesday, where CEO Ed Liddy is expected to be under fire for the $165 million in AIG bonuses paid out last week. Committee Chairman Rep. Barney Frank already warned in comments Tuesday that he thinks the U.S. should take more aggressive control of AIG and that it should be sued to get the bonus money back.
There are a few earnings Wednesday, including General Mills before the bell, and Oracle and Nike after the bell. Starbucks holds its shareholder meeting at 1 p.m.
For the most part, FOMC watchers expect the Fed to say it will continue to consider the purchase of Treasury securities but that it will not say it is ready to act. The Fed could also give more details on the purchases of other securities.
Drew Matus, senior U.S. economist at Bank of America-Merrill Lynch, said in a note that he does not expect the Fed to commit itself to a Treasury purchase program but instead expand its existing mortgage-backed securities buying program. "Whatever the actual language, the statement is likely to attempt to keep all the Fed's options open," he wrote.
"This is a very good day for stocks, and bonds are feeling the brunt of it. Stocks had to show momentum today " said Michael Franzese, head of government bond trading at Standard Chartered, ahead of the stock market's close Tuesday.
A $13.5 billion Pfizer debt offering priced in five parts during the afternoon. The results were better than expected and showed the appetite for new corporate issues continues to be strong. "The Pfizer pricing sent the five-year scorching after it was down all day. It was the weakest on the board and all of a sudden it came roaring back," he said.
"I think 2:15 tomorrow is more important for the rest of the month. Volumes have been slow. People have been waiting for direction. We're in this range. We're making lower highs and just consolidating down," Franzese said of the Fed statement.
The 10-year's yield was at 3.003 percent Tuesday, its highest level since March 4. The two-year's yield rose to 1.037 percent. For the 10-year, "3.07 is a big bubble. You break through that and there's a 30 percent chance you'll see 3.30 to 3.40 within three weeks," Franzese said.
Despite OPEC's lack of action this past weekend, oil continues to creep higher, toward $50 per barrel. Crude closed up $1.81 or 3.8 percent at $49.16 per barrel on the NYMEX.
"The options expiration's got the fires going," said John Kilduff, senior vice president at M.F. Global. The April crude contract expires Friday. The May contract, which rolls forward on Friday afternoon, is already just north of $50.
More From CNBC.com
- Get After-the-Bell Dow 30 Quotes
- Credit Spreads and Libor Data
- Futures and Pre-Market Data
- Currency Data
"It looks like we'll stay closer to $50 for a little bit. It's hard to imagine these prices can maintain themselves. The demand outlook and overproduction doesn't favor them staying, unless we're getting signals that the economy is turning around. If that's the case, the bottom's going to be in for oil," he said.
Kilduff said if oil can move above $50.98, it would surpass its early January high. "That would argue for a technical breakout ... and potentially make the run toward $58 and $60," he said. Gasoline, too, is moving higher at the NYMEX, and at the pump. "The national average is going to be back over $2 (per gallon) and that could be by the weekend," he said.
OPEC, meanwhile, is vowing to make sure that members meet current quotas. "You've got the Saudis doing more than their fair share. They're under quota," he said.