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The market blithely ignored the serious global problems in Japan, the Middle East and Europe last week and continued to surge ahead, with the S&P 500 closing up nearly 3% for the week. The S&P crossed not only its 50-day moving average, but its 30-day MA as well, and, after closing down a bit today, it sits at 1310.19, which is about 2% below its 3-year high.

Last week I thought the market was clearly off its rocker, but after a little analysis it seems clear to me that what this market wants is earnings.

Earnings appear to be the underlying reason for the market’s seemingly irrational fearlessness. Last year, the S&P 500 gained more than 35% in earnings, and earnings estimates for the current year are equally robust. Actual earnings – the few we’ve seen so far for 2011 – have been strong.

We’re at the second anniversary of the market’s bottoming in early March of 2009. At that time the projected P/E for the largest 2000 companies was about 10. It was somewhat surprising to find that after a 90% rise in the S&P 500 over the past two years and an equivalent rise in earnings on a compounded basis, the projected P/E for 2011 is less than 11.

So . . . earnings are strong, P/Es are low; rising interest rates are driving money from bonds to stocks; fairly massive short positions are being squeezed by the rising tide. Given this scenario, it is entirely possible that the market may well move ahead despite the global situation.

Is the glass half empty or half full?

If you can look at it through unemotional eyes, the glass is half full. What happened in Japan is a tragedy of the greatest magnitude, and we still don’t know the outcome. But the country has a gigantic infrastructure to rebuild, and that is not a bad thing for business. Dictators are falling in the Middle East, but that’s a good thing for the people and not a bad thing economically. Portugal’s default is a sign of bad economic times in Europe, but the EU will likely bail them out, and frankly, they are a minor player on the global economic stage.

Looking at the domestic economic picture through a trauma-free lens, corporate America is cash-rich and earnings-rich. There is every reason to believe that, during 2011-2012, the market could duplicate its performance since the March 2009 low, despite the global outlook.

That said, corporations must continue to meet the earnings projected by analysts in order for this to happen. But to date, I’ve not seen any reason to doubt they can do this, despite the gloom and doom.

As for market stats, last week was no flight to safety for the market. The leading cap/style was Small-cap Growth, up +4.33%, with Large-cap Value the worst, up +2.23%, exactly the opposite of a flight to safety. The top performing sectors – Technology, Energy, Capital Goods, and Basic Industries – were not the traditional safe havens either. The safe havens — Consumer Non- Durables, Health Care and Utilities – were all in the bottom five.

Click here to see the market stats.

The dollar did recover some last week but was down a bit today. The VIX fell substantially last week, but was up slightly today. Interest rates were up last week and again today, and oil prices were up sharply last week, but off a bit today. Undoubtedly, last week’s surging oil prices were the reason that Energy came in as the No. 2 performer.

Economic reports were a mixed bag, but basically more positive than not. On the positive side, fourth quarter GDP was raised again, to 3.1%, and initial jobless claims fell slightly yet again. On the negative side, durable goods orders were down, and both existing and new home sales were decidedly bad. Today’s reports were also mixed. The housing industry got its first good news in weeks, with the pending home sales index higher than expected (90.8 vs. 88.9). Personal income was less than expected; consumer spending, more than expected; and inflation crept up slightly. As I said, a mixed bag.

Our forward-looking SectorCast shows Basic Industries, Energy and Health Care at the top, with Transportation and the three consumer-related sectors at the bottom.

Reports to watch for the rest of the week are the weekly initial jobless claims, factory orders, and Chicago PMI on Thursday; and on Friday, construction spending, ISM manufacturing index, and the important monthly Employment Situation report, which will tell us whether our unemployment rate is continuing to fall.

4 Stock Ideas for This Market

This week, I employed the High Growth preset search in MyStockFinder (http://MyStockFinder.com). Here are four stock ideas that look particularly strong right now.

OMNOVA Solutions (OMN) – Basic Industries
Coleman Cable (CCIX) – Capital Goods
IPG Photonics (IPGP) – Technology
Lululemon (LULU) – Consumer Non-durables

Source: What the Market Wants: Earnings, Apparently