The S&P 500 was up in six of the last eight trading days as geopolitical risk in Syria and worries over China trade wars have subsided, allowing traders to focus on earnings.
Now the Street is actively wondering if we can take a run at breaking the January historic highs. We are only 1.3 percent from record highs in the Russell 2000 and 5 percent in the .
The market has one overriding positive: earnings. Projections were good at the end of 2017, they got better as 2018 wore on, and they have only gotten better since earnings season started a week ago.
How strong are the earnings? Midday Wednesday, we were at the 10 percent mark — 52 companies in the S&P 500 had reported. The results have been earnings and revenue way above even the heightened expectations going into the season:
Earnings: up 30 percent
Revenue: up 10.6 percent
The vast majority (more than 80 percent) are not only beating the estimates, they are beating by more than expected. This is not unprecedented, but given the size of the expected earnings gain in the first quarter (about 18 percent for the entire S&P 500), it is certainly a rarity.
It's not too strong to describe earnings as a "juggernaut."
That's the good news. And yet most traders, while loving the focus on earnings, are doubtful we can hit new highs. That's because they fear the Great Rally Killer: the Federal Reserve.
It is inexorably etched into trader history that rallies are killed two ways: Either a recession will get it, or the Fed will too aggressively raise rates.
No one thinks a recession is imminent, but the Fed looms. We seem only one or two nasty inflation reports away from rates rising again.
Think I'm being too alarmist? "The past couple of days has seen a number of Fed officials deliver comments that could be interpreted as being somewhat hawkish," independent bond analyst Adrian Miller told CNBC.
The 10-year Treasury yield shot up at midday. You can thank the New York Fed's William Dudley, who said that it was "important to get policy back to neutral." Dallas Fed President Rob Kaplan on Monday said "cyclical inflationary pressures are building," though he also noted that corporations still lack pricing power.
"The market is interpreting this to mean there could be four rate hikes instead of three" in 2018, Miller said.
The market is taking the rate hikes in stride because it has been so gradual. Anything that implies the hikes are faster than the Street is "emotionally" ready to absorb is an issue.
There are other issues as well. The market has advanced, but for the moment it seems a little overbought.
"So far, earnings reaction has been mixed in individual stocks after they report, which makes me worry that there is a significant amount of good news priced in already," Steve Sosnick of Interactive Brokers told CNBC.
I agree. A couple of flat days would be a victory for the bulls.
But among other issues, geopolitics could quickly resurface, tech regulation could become an issue, and we are entering a seasonally weak time of the year.
Aside from the Fed, most alarming of all is that global growth seems to have become a little more sketchy, with European economic growth in focus as Europe begins earnings season on Thursday.
While U.S. companies were expected to hit 18 percent earnings growth, nothing like that is happening in Europe. We are expecting a measly 1.9 percent earnings growth in Europe, according to Thomson Reuters, and a 1.2 percent drop in revenue. That's quite a gap.
You can chalk that up to the effect of the U.S. tax cuts, a stronger euro and somewhat weaker economic data.
And that's the big debate: After several years on an upward slope, just how much is global growth slowing? Alarmists like to point to the Citigroup Economic Surprise Index, which measures how much the economic data are surprising relative to market expectations for the G-10, the group of major industrial countries that consult on economic matters. After hitting new highs, it's been slipping since the start of the year and turned negative in the second quarter.
The bulls can only pray that the earnings keep getting better and better, into the second, third and even fourth quarters.