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Lionel Messi, Barcelona

What will stop this rally?
First, the scoreboard:
Dow: 12,625.49, +46.5, +0.4%
S&P 500: 1,314.5, +6.5, +0.5%
NASDAQ: 2,788.3, +18.6, +0.7%
And now, the top stories:
  • The global markets were somewhat on edge early this morning as they awaited the results of some crucial Spanish and French bond auctions.  The good news is that they went well, effectively dismissing last Friday's S&P downgrade of 9 European countries.  Prior to the auctions, Fitch also warned that more downgrades were coming, but these comments were also largely brushed off.  High praise to new ECB president Mario Draghi for ramping up efforts to aid the eurozone.
  • We had a handful of U.S. economic data releases this morning.  Most notably, initial jobless claims fell to 352k from last week's 402k.  This was much better than the 384k economists had expected. 
  • December CPI was flat in December; economists were expecting the headline number to rise 0.1%.  Core CPI, which excludes food and energy, rose by 0.1% as expected.
  • December housing starts fell 4.1% to 657k on an annualized basis.  Economists were expecting a more modest decline to 680k.  Does this mean there's another shoe to drop?  
  • Markets had a hiccup at around 10:00 AM when the January Philly Fed index came in at 7.3, falling short of economists' estimate o 10.3.  But the resilient markets quickly rallied.
  • In case you missed it, Eastman Kodak finally filed for bankruptcy protection shortly after midnight.  This follows months of speculation of exactly that.
  • This morning's trading session was kicked off by two more big bank earnings announcements.  Bank of America announced earnings of $0.15 per share, beating expectations.  Investors were likely encouraged by the bank's ability to raise its Tier 1 common equity ratio to 9.86% from 8.65% in the previous quarter.  Shares climbed 2.4%.
  • Morgan Stanley announced a fourth quarter net loss of $0.15.  However, analysts were looking for a loss of $0.57.  Shares jumped 5.4%.  Competitor Goldman Sachs also benefited from the rally in investment banking stocks.
  • It's also worth mentioning that Treasuries sold off a little during today's stock market rally.  Typically, that type of sector rotation shouldn't be a surprise.  However, it was something that hadn't been happening in recent months.
  • A little commentary: While the inverse correlation between stocks and Treasuries appears to be returning to normal somewhat, the relationship between stocks and earnings isn't.  In a note to clients today, Barclays' Barry Knapp noted that 1) the negative-to-positive preannouncements ratio is at multi-year highs and 2) the earnings surprise ratio has been tumbling.  Both are bearish reads.  Especially with stocks rallying as of late, investors may experience some volatility if corporations continue to announce mediocre or disappointing Q4 results.
  • A little more commentary: On the other hand the stock market rally may be explained by the fact that the equity risk premium is already at abnormally high levels.  This is an argument that Oppenheimer's Brian Belski has been pushing.  In other words, investors' appetite for risk has been so low that the appetite may rise even in an increasingly risky environment.
  • Earnings season continues after the bell.  Follow Google, Microsoft, and American Express earnings ...