Updated from 1:30 p.m. EDT
Update: After hitting a new multi-year high of 12,450 Friday morning, the Dow was tumbling in the final hour. In recent trading, the index was down 0.6% to 12,339 and on track for a modest weekly loss.
Earlier: Stocks held near multi-year highs this week, pretty much ignoring the contentious budget battle in Washington, rising oil prices, rate hikes in Europe and China, more chatter about Fed tightening…and just about everything else.
"We've entered stupid town in terms of the rally," our Breakout colleague Jeff Macke tells Henry and me in the accompanying video. "None of this stuff matters until it does and then it's going to matter in a big hurry. Until then, just be long and try not to think."
Indeed, the market has confounded those who've tried to "out-think" the rally since March 2009. It hasn't paid to fret about any number of potential negative developments, including Europe's debt crisis, which reared its ugly head again this week as Portugal was forced to (finally) ask for a bailout.
Meanwhile, the ECB raised rates for the first time since 2008 while China's central bank increased rates for the fourth time since Christmas as it tries to reign in inflationary pressures in the world's most populous nation.
At some point, the U.S. Federal Reserve will join the global tightening parade and this week brought more evidence of the debate inside the central bank on the topic.
The Tipping Point
On Monday, Fed chairman Ben Bernanke predicted "the increase in inflation will be transitory," but market indicators say otherwise.
Inflation expectations for 5- and 10-year TIPS hit a five-year high this week while gold hit another record, silver crossed $40 for the first time since 1980 and Brent crude topped $125 per barrel.
"Having done our job, I see many risks to the Fed overstaying its welcome," Dallas Fed President Richard Fisher said in a speech Friday, the latest in a string of Fed officials to express concern about the central bank being behind the curve. "We at the Fed are near a tipping point."
If the stock market is at a tipping point, it would seem to be one in which the animal spirits accelerate toward ridiculous speed. More merger activity such as Texas Instruments' rich buyout bid for National Semiconductor could prompt the bears to throw in the proverbial towel, propelling the market higher still.
The conventional wisdom is the market will keep rallying until the Fed acts to raise rates, although history shows stocks do well in the early stages of a tightening cycle. And if recent history is any guide, the Fed will move later than expected, which could help stocks in the short-term but cause all sorts of problems in the months (and potentially years) ahead.
The Coming Week
Here's a list of notable events for the coming week, as compiled by the staff of Yahoo! Finance and featuring the unofficial start of earnings season Monday, and CPI and PPI reports to end the week:
Monday, April 11
- Earnings season kicks off "unofficially" with Alcoa before the bell
- Fed speaker: Charles Plosser
Tuesday, April 12
- Fed speaker: William Dudley
- Data/announcements: Trade deficit, 8:30 a.m. ET; import/export prices, 8:30 a.m. ET; Bank of Canada interest rate announcement, 9:00 a.m. ET; treasury budget, 2:00 p.m. ET
Wednesday, April 13
- Data: Retail sales, 8:30 a.m. ET; business inventories, 10:00 a.m. ET; Fed Beige Book, 2:00 p.m. ET
- Key earnings: JPMorgan (before the bell)
Thursday, April 14
- Data: Wholesale inflation, 8:30 a.m. ET: weekly jobless claims, 8:30 a.m. ET, Fed balance sheet, 4:30 p.m. ET
- Fed speakers: Narayana Kockerlakota, Charles Plosser, Jeffrey Lacker
- G7 Meeting of Finance Ministers and Central Bank Governors. Attendees include UK Chancellor George Osborne, Bank of England Governor Mervyn King, Fed Chairman Ben Bernanke, and U.S. Secretary of the Treasury Tim Geithner. Subjects expected to be discussed include the current global economic situation, the Japan disaster, unrest in the Middle East, and Portugal's request for a bailout. G20 meeting follows tomorrow.
- President Obama goes back to his hometown of Chicago to attend the first fundraiser of re-election bid.
- Key earnings: Google (after the bell)
Friday, April 15
- Data: Consumer inflation, 8:30 a.m. ET; Empire State manufacturing survey, 8:30 a.m. ET; industrial production, 9:15 a.m. ET; consumer sentiment, 9:55 a.m. ET
- Fed speakers: Charles Evans, Thomas Hoenig
- G20 Meeting of Finance Ministers and Central Bank Governors.
- Key earnings: Bank of America (before the bell)