Recipe for a rally: Eager buyers, reluctant sellers

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Despite a pullback near the closing bell today, the stock market’s summer rally isn’t showing many signs of peaking out.

It’s always tempting fate to say that, but the evidence is that buyers still are eager -- and that potential sellers aren’t keen on letting go at these prices.

‘The attitude is, ‘Why sell today when you can sell higher tomorrow?’ ‘ said Ryan Larson, head of equity trading at Voyageur Asset Management in Chicago.

The Standard & Poor’s 500 index closed up 11.60 points, or 1.2%, to 986.75, the highest finish since Nov. 4. The index is up 12.2% since July 10 and 9.2% this year to date.

At its high for the session the S&P reached 996.68, knocking on the door of the 1,000 mark.

The summer rally has been rooted in the belief that the worst has passed for the economy and that some kind of recovery will begin in the next five months or so.

As is usually the case, ‘investors are positioning themselves ahead of the fundamentals,’ Larson said.

The bears insist that an economic recovery in the second half is a fantasy, but investors have been heartened by quarterly earnings reports that have been nowhere near as dire as feared, thanks largely to massive cost-cutting.

What really helps, though, is to hear more corporate chiefs use the ‘B’ word. ‘The United States economy has found bottom,’ Andrew Liveris, CEO of Dow Chemical, said in the company’s earnings report today. He added, though, that a recovery ‘will be slow . . . as unemployment continues to be a drag on consumer spending.’

Dow’s shares jumped $1.26, or 6.2%, to $21.53.

Goodyear Tire CEO Robert Keegan said the company was ‘beginning to see some signs of economic stabilization and recovery, although still fragile at this stage and varied around the globe.’ Goodyear’s shares rose $1.97, or 14.2%, to $15.86.

Naturally, every CEO is talking his book: If he owns shares in his company or has stock options, it’s in his interest to keep this market momentum going.

But that’s also how economic cycles turn -- each bit of encouraging data builds on another. In a sense, the economy always has to talk itself into a recovery. That’s the process underway now, and it would only be unusual if the stock market weren’t responding positively to what it hears.

-- Tom Petruno