The equity market had its share of positive developments to focus on Thursday.  It did so for a while, riding an impressive earnings report from Caterpillar (CAT) and a solid durable goods orders report to early gains.  Those gains, however, were not built to last as the market eventually succumbed to profit taking that left the S&P 500 down 0.6% for the day.

Entering today's session, the S&P 500 is up 0.2% for the week.  If it can maintain that edge, it would be the fourth straight week of gains for the S&P 500.

Overnight action did not upset the apple cart at all.  We have yet another report that a Greek debt swap deal could be near and that is allegedly providing a measure of support. 

In addition, Italy successfully auctioned off EUR 11 bln worth of 3-month and 6-month bills.  The real kicker on the Italian bond front, though, is that the yield on Italy's benchmark 10-year note has dropped below 6.00% (currently 5.86%).  Separately, the yield on Spain's 10-year note has dropped below 5.00% (currently 4.70%).

The drop in yields there reflects an easing of fears about the eurozone debt crisis, although the recent rally still has an air of walking on eggshells on the way to climb a wall of worry.  Current readings, though, beat the alternative of seeing 7-handles any day and can be regarded as a move in the right direction toward bolstering confidence in the idea that a systemic banking crisis can be avoided.

The latter view has been a catalyst for buying interest in equity markets around the globe to begin the year.  That point notwithstanding, it does not appear to be offering much help this morning.

European equity markets are mixed and the U.S. market is poised to start the day on a slightly lower note.

Earnings misses by Ford (F) and Chevron (CVX), coupled with disappointing fiscal year guidance from Procter & Gamble (PG) and a lower-than-expected reading in the advance estimate for Q4 GDP, have taken some wind out of the market's sails.

Though backward-looking, the GDP number has acted as the biggest weight in the early going. 

The advance estimate showed real GDP increased at an annual rate of 2.8% in the fourth quarter.  That was below the Briefing.com consensus estimate of 3.2%, but the real focal point for the market is that the bulk of the increase stemmed from the change in private inventories, which increased $56.0 bln and contributed 1.94 percentage points to the fourth quarter change in real GDP.

Real final sales, which exclude the change in inventories, rose just 0.8% after a 3.2% increase in the third quarter.

An acceleration in personal consumption expenditures (+2.0%) and in residential fixed investment (+10.9%) provided positive contributions to the change in GDP, adding 1.45 percentage points and 0.23 percentage points, respectively.

A downturn in federal government spending (-7.3%), a deceleration in nonresidential fixed investment (+1.7% from +15.7% in Q3), an acceleration in imports (+4.4% from +1.2% in Q3), and a larger decrease in state and local government spending (-2.6%), the BEA said, partly offset the strength in other areas.

The concern for the market is that the change in inventories will act as a drag on Q1 GDP growth since there is unlikely to be a build from current levels.  Accordingly, there is a bit of a sting in the thought that Q1 GDP could fall back to the "new normal" zone that is closer to 2.0%.

We shall see what the future brings, but the headline disappointment today is registering in a market that is running into technical resistance and is seeing increases in investor sentiment readings, which are waving as a contrarian flag that could signal a period of consolidation is due.

--Patrick J. O'Hare, Briefing.com

Patrick J. O'Hare is Chief Market Analyst for Briefing Research, Briefing.com's institutional research service. To request a free trial, please email researchsales@briefing.com.