Earnings season is going much better than expected, which means business performance could be catching up with the waves of liquidityinjected by the Federal Reserve into the global economy.   Should that endure, this will be a major victory for Federal Reserve Chairman Ben Bernanke and signal a major new arsenal for monetary policy with all the new weapons deployed in various quantitative easing measure.

Unemployment and economic growth are still tepid.  But with last week’s earnings reports, the S&P 500 is exceeding its estimates.  Analysts were projecting that the S&P 500 would earn $25.49 for the first quarter.   It is on a path to top that with $26.14, with two thirds of the companies reporting.  That is 2.5% better than Wall Street expected.  It is also 7.8% better than last year.

While it has been said the job of the Federal Reserve is to take the punch bowl away when the party gets rolling, Bernanke is now near taking that action.  He has already pledged to spend more trillions more buying Treasury Bonds and mortgage-backed securities to keep interest rates low and engender a  rebound in housing.  It certainly appears to be working with housing as prices are much higher with homes selling faster.

The market should gave Bernanke another show of strength.

All three indices closed higher.  More records were set.  Check out the candlestick patterns for each, as all close in a very bullish surge.

Very bullish was that stocks hitting new highs outnumbered those hitting a new low by better than ten-to-1.  More than two thirds of stocks are trading higher than both their 50-day and 200-day moving averages.

What is truly stunning, however, is the growth of the Federal Reserve balance sheet due to quantitative easing.  From less than a trillion in 2007. it is well over $3 trillion now.  Those assets were bought through an accounting mechanism, not an appropriation from Congress.  All are potential liabilities for the American taxpayer, though.