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Pisani: What's Driving the Rally

Stocks rallied mid-morning on pending home sales in line, dollar weakness, Mr. Geithner speaking like a fiscal conservative—but most point to earnings commentary as the main factor for the rally. Three items stand out:

1) An encouraging report from the nation's largest home builder. DR Horton, which specializes in first time buyers, not only beat expectations but reported a PROFIT of $0.12 (excluding tax benefits), consensus was for a LOSS of $0.14.

This was the first profitable quarter since March 2007.

Net sales up 45 percent compared to a year ago.

Closings increase 36 percent—here is the impact of the first-time homebuyer tax credit.

Impairments way down.

2) Positive comments on conference calls this morning. Aside from Horton, there were the usual cautious comments about the uncertainty of the recovery, but several were a bit more optimistic. These comments from conference calls were being passed around:

Horton: Expects new home sales to rise by 27 percent in 2010.

Whirlpool: Views 2010 as "year of full recovery for our company"

Dow Chemical: feels better about N. America, European economy

Cummins: sees extended period of profit growth after 2010 because of cost-cutting

3) Ann Taylor surprising the retail world by saying that Q4 earnings "will exceed expectations," raising its Q4 sales outlook, and most importantly noting that margins significantly improved.

Analysts note that the margin improvement was driven by planned promotions and leaner inventories. Last year there was panicky, aggressive clearances, this year it was more planned, more organized. And inventories were especially lean: the company entered 4Q with inventory down 21 percent per square foot.

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