The Dow's Rise: Don't Believe the Hype

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Faithful readers of this column will know I've been racking my head to explain what I perceive to be an unusual level of complacency in the stock market (there is evidence for it in the bond markets, also.) Once in a while, I'll come across clues that highlight specific misperceptions; here's one: In a survey of economists by The Wall Street Journal, more than one in five (22%) thought that the White House and the Congress would achieve [my emphasis] "a compromise that deals with the fiscal cliff and makes a dent in long-term deficits." That seems very optimistic, and it makes me wonder if these economists understand what it would take to achieve it.

The Dow (INDEX: ^DJI) and the S&P 500 (INDEX: ^GSPC) rose 0.9% and 1%, respectively, today as investors were buoyed by earnings "beats" by blue-chip names including investment bank Goldman Sachs and pharmaceuticals stalwart Johnson & Johnson. In fact, it was the Dow's best daily performance since the Fed's launch of the latest round of quantitative easing.

Another bellwether, PC chip manufacturer Intel (NAS: INTC) also reported earnings that beat estimates --€“ for both earnings-per-share and revenues -- after the close. However, once you scratch below the headline number, the outlook for future cashflows is not as rosy as the past quarter's performance: Intel said it expects gross margins of 57% in the fourth quarter, compared with Wall Street expectations of 62%. Shares fell 3.4% in after-hours trading, after having gained 2.8% during the regular session.


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The article The Dow's Rise: Don't Believe the Hype originally appeared on Fool.com.

Fool contributor Alex Dumortier, CFA, has no positions in the stocks mentioned above; you can follow him @longrunreturns. The Motley Fool owns shares of Intel. Motley Fool newsletter services recommend Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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