Wall Street is closing out the first half of 2011 with its best hopes for the economy dashed again -- but still refusing to yield to its worst fears.
With one trading day to go in the second quarter, major U.S. stock indexes are on track to post low- to mid-single-digit percentage gains in the first six months, modestly extending the bull market that began more than two years ago.
The Dow Jones industrial average ended Wednesday at 12,261.42, up 72.73 points for the day and up 5.9% for the year to date.
Among broader indexes, the Standard & Poor's 500 is up 4% for the year; the tech-heavy Nasdaq composite is up 3.3%.
Any gain may seem remarkable considering the shocks investors faced in the first half: massive unrest in the Middle East, a surge in oil prices, Japan's devastating earthquake, Europe's worsening debt crisis and another downturn in the U.S. housing market -- all of which sapped economic growth.
Given that litany of woes, "it's an amazingly resilient market," said Tim Ghriskey, chief investment officer at money manager Solaris Group in Bedford Hills, N.Y.
Optimists now are pinning their hopes on the economy strengthening in the second half, continuing to lift corporate earnings.
The risk is that some of the same forces that clipped the recovery in the first half may not dissipate, and could worsen.
On Wednesday, the crisis of the moment -- a potential default by Greece on its nearly $500 billion in government debt -- eased somewhat after the nation's parliament approved new austerity measures required as a precondition of further aid from the European Union.
Most European stock markets rallied for a third day, and U.S. shares followed.
Greece was the main reason the second quarter had such a deja vu feel on Wall Street. The country's financial condition first began to unravel more than a year ago, triggering a market sell-off in the spring of 2010 that swept across Europe and helped upend U.S. stocks.
What's more, this year, as last year, the U.S. economy began to slow markedly in the spring, disappointing investors who expected the recovery to gain momentum.
Stocks began to slide in early May, and the Dow index fell for six straight weeks. Some spooked investors ran to the relative safety of U.S. Treasury securities, pushing interest rates on the bonds down sharply.
But the damage done to the stock market this quarter has been much less severe than what happened a year ago.
The Dow sank 14% from late April 2010 to its summer low July 2, a decline that included the infamous May 6 "flash crash."
This year, the Dow's decline held to 7.1% from its peak of 12,810.54 on April 29 to its recent low June 15. Losses in most broader indexes also came to less than 10% from their spring highs before share prices stabilized in the last two weeks.
Market bulls said many investors have been unwilling to part with equities for two reasons. One is the feeling that stocks are reasonably priced, or even historically cheap, relative to per-share earnings.
The average stock in the S&P 500 index has a price-to-earnings ratio of about 13 based on expected 2011 earnings.
"With stocks at 13 times earnings, it's fair to think the market has discounted a lot of bad news," said Jason Trennert, chief investment strategist at Strategas Research Partners in New York.
More important is the level of faith investors have in the economy picking up speed in the second half of the year, further boosting earnings. Although real growth in U.S. gross domestic product is expected to be less than 2% at an annualized rate in the current quarter, many economists expect a rebound to 3% to 4% growth in the third quarter.
If you believe the economy will accelerate, "The stock market is the only game in town," said Randy Bateman, chief investment officer at Huntington Asset Management in Columbus, Ohio.
Japan's earthquake in March pulled down global growth this quarter by causing shortages of supplies of industrial parts, particularly for autos and computers. That drag on growth is expected to lift this summer as Japanese output ramps back up.
On Wednesday Japan said its industrial production soared 5.7% in May from April, the biggest increase in more than 50 years. That helped lift the Nikkei 225 stock index 1.5% to a seven-week high of 9,797, though the index still is down 4.2% this year.
Market optimists also are counting on crude oil prices to stay down from their recent peaks, giving consumers a break at the gas pump -- and more cash to spend elsewhere. Gasoline prices have fallen about 40 cents a gallon in California since early May, to an average of about $3.85 now, according to AAA.
Developed nations led by the U.S. last week said they would release crude from strategic reserves to make up for lost Mideast supplies. The surprise announcement helped push U.S. crude prices to $90.61 a barrel by Monday, the lowest since mid-February and down from the spring peak of $113.93 on April 29.