Consumer weakness—as shown by Tuesday's retail sales numbers—serves as a reminder that the economy still poses a danger to the stock market.
Investors otherwise in a good mood over the relative health of the financial sector retreated a bit, signaling that while a fairly firm market bottom may have been put in, the race to the top won't be a picnic either.
Retail sales dropped an unexpected 1.1 percent, leading to a negative day on Wall Street. Even comments from President Obama and Fed Chairman Ben Bernanke that the economy was showing signs of recovering didn't help investors' mood.
That the selloff was not more dramatic may have provided some encouragement that the market can withstand bad news. Nonetheless, there was a pervasive feeling that there's work to be done before investors can feel safe again.
"We've had various things happen that in the past several months would have caused a (major) selloff and that's not happening," says Richard Sparks, senior analyst at Schaeffer's Investment Research in Cincinnati. "By the same token I don't see us at least in the near term jumping back up to 10,000 on the Dow—which would suggest to me that we're in a grind phase."
Using a cautious strategy of both long and short plays as the market goes through its gyrations, the strategy at Schaeffer's reflects the mood among many investment pros who think the water is a bit turbulent yet to commit to long-term growth in stocks.
Sparks says he thinks the market may be in a leveling off phase where the bottom may hold but investors don't show enough confidence to send the market appreciably higher either.
Trouble looms in both economic performance and corporate health.
The job market continues on a trek that likely will find unemployment exceeding 10 percent, while companies, particular those in the financial realm, are likely to continue to get socked with losses from mortgage and credit-card defaults to come.
"Our conclusion is that while share prices have rallied off a tortuous low in March, the operating environment for most public companies has not changed," Michael Farr, president of Farr, Miller & Washington, wrote in a blog post for CNBC.com. "So we remain cautious, buying when valuations are compelling (as they were in early March) and paring positions as recently as yesterday. In successful investing, discipline trumps emotion."
The large banks and financial companies continued to generate suspicion, despite recent news that Goldman Sachs and Wells Fargo had better quarters than Wall Street expected.
In particular, Goldman's numbers "are cooked," Christopher Whalen, managing director at Institutional Risk Analytics, told CNBC (see video). The bank's results don't reflect accelerated losses the company will face in the quarters ahead, Whalen said, something that is pervasive in the sector and should give investors reason to stay away from those stocks.
"This is a head fake," he said of the market's five-week rally. "It's a relief rally. People want the stocks to go up, they will go up. But we're looking at the fattest part of the loss experience headed towards the industry now, both banks and financials. I am not telling my clients they want to be buyers of these stocks right now."
As for the economic statistics, not everyone believes the numbers tell the whole story.
Many of the data points released—unemployment paramount among them—are backward-looking indicators that do not show what's ahead. That is one of the reasons stocks generally come out of a bear market before the economy shows signs the recession is over.
"I trust the market to tell you what is going on rather than month-to-month, day-to-day, week-to-week economic numbers. I think the market is basically taking back the panic low," says Michael Cohn, chief investment strategist at Atlantis Asset Management in New York.
"The market has calmed down a little," Cohn adds. "What we're in the process of doing is taking back the perception that the world is just going to continue to crater and crater and crater."
Yet even someone as bullish as Cohn is somewhat tepid about the near-term growth prospects for the stock market.
He has been using covered-calls safety, a strategy that involves long positions and shorter-term call options that generate cash. At its core, the play's premise is that the share price of the stock in question will not much move either way in the near term.
That fits in with Cohn's belief that the Dow will find some resistance around 9,000 as investors who lost money when the industrial average slipped below 7,000 will try to book profits or break even.
"As it lifts back towards that level human nature say, 'I'm even so I'm going to get out,'" he says. "What was support now becomes resistance, but I think this rally has a little bit to go."