Market Update

Stocks rallied Wednesday, more than erasing Tuesday's broad-based pullback, as a market increasingly vulnerable to rising bond yields finally got some interest rate reprieve. All 10 economic sectors posted hefty gains while only four of the 147 S&P 500 industry groups closed lower.

After tumbling more than 1.0% Tuesday and being down 2.3% on average less than two weeks into June, it was reasonable to see the major indices stage some sort of a rebound Wednesday. Surprising, though, was a government report that provided investors with a much-needed best case scenario of economic expansion without rising inflation pressures.

At 2:00 ET the Beige Book showed that manufacturing activity was up in most districts while the majority of the 12 Fed regions also reported that overall wage pressures do not seem to be rising, even though hiring picked up in late April through May.

That anecdotal report helped calm some of the nervousness ahead of key inflation data coming in the next two sessions (i.e., PPI and CPI) and provided an even stronger floor of support under early market gains that were inspired by a relief rally in Treasuries.

With the 10-year yield closing at a five-year high of 5.24% yesterday and overnight action lifting it to 5.32% (a 43-basis point surge since May 31), income-oriented investors were looking to benefit from the bond market's oversold condition. Strikingly, today's bond rally gained traction after a stronger than expected Retail Sales report for May.

Of the 10 economic sectors closing sharply higher, Materials (+2.2%) led the charge after Bear Stearns said Alcan (AL 83.17 0.74) might make a counteroffer for Dow component Alcoa (AA