Strong earnings from Caterpillar (CAT) drove the stock up 4.2% to a new 52-week high yesterday. And CAT’s advance also enabled the Dow Jones Industrial Average (DJI) to close at a small gain. But the other major indices fell modestly due to a broad sell-off in the financial sector.

Financials fell 1.7%, with Citigroup (C) off 5.1%, Goldman Sachs (GS) and Morgan Stanley (MS) off more than 3%, and JP Morgan Chase (JPM) off 2.3%. And BlackRock (BLK) was crushed by a fall of 8.6% following an earnings disappointment.

Citigroup’s fall was attributed to the Treasury’s authorized sale of 1.1 billion shares of its stock, which is part of the government’s total holdings of 7 billion shares.

One of the few sectors that gained yesterday was consumer discretionary, which was up 0.6%. It was a 10% gain in Whirlpool (WHR) that helped the sector, as the appliance maker said that its Q1 net income more than doubled. Whirlpool raised its 2010 earnings outlook following gains in revenues and profit margins.

Other gains included car rental stocks due to an announcement by Hertz Global Holdings (HTZ) of plans to acquire Dollar Thrifty Automotive Group (DTG) for $1.27 billion.

And insurance stock Humana (HUM) reported better-than-expected earnings, but its stock fell 4.3%.

The U.S. dollar rose modestly against the euro as more talk of a possible default by Greece took center stage in Europe. The 10-year Treasury note closed at a yield of 3.813%.

At the close, the Dow rose less than a point to 11,205, the S&P 500 (SPX) fell 5 points to 1,212, and the Nasdaq (NASD) lost 7 points to 2,523.

The NYSE traded 1.2 billion shares with decliners ahead of advancers by 10-to-9, and the Nasdaq exchanged 645 million shares with less than 100 decliners over advancers.

Crude oil for June delivery fell 56 cents to $84.56 a barrel as traders’ fear that an interest rate hike may be announced this afternoon. The Energy Select Sector SPDR (XLE) fell 21 cents, closing at $61.88. 

June gold gained 30 cents to close at $1,154 an ounce. The PHLX Gold/Silver Sector Index (XAU) gained .06 points at 172.49.

What the Markets Are Saying

There was little in the way of technical developments yesterday, except for the Dow’s intraday advance to above the Fibonacci 62% level at 11,245. It closed at 11,205, barely eking out a gain while the other key indices lost fractionally.

So the inching forward process continues — and probably will continue until some unfavorable news surprise leads to a well-needed correction.

On the bond front, it is worth noting that corporate credit has been getting stronger, and that is good for stocks, as well as bonds. A measurement of the improvement in bonds is that the high-yield default rate, at 10.9% in March, is expected to fall to 3.1% by December, according to CNBC. Spreads in that market have already begun to narrow, indicating a pickup in trading and especially in demand.

And with nearly 35% of the S&P’s companies having reported, almost 82% have exceeded analysts’ earnings estimates. If earnings continue at that pace, the stock market should easily rise following a correction. 

For now, though, buying high-yield bonds and bond funds might be a way to bring in some above-average income and also land a gain while the market adjusts lower.

Today’s Trading Landscape

Earnings to be reported before the opening include: 3M, A.M. Castle, Affiliated Managers, AGCO Corp., Amedisys, American Ecology Corp., Amerigon, Ametek, Anixter, Ashland, Autoliv, Automatic Data, Avery Dennison, BE Aerospace, BP plc, Capella Education, Carlisle Companies, Carpenter Technology, Celanese, Centene, Ceradyne, Cirrus Logic, CIT Group, Coca-Cola Enterprises, Convergys, Corn Products, Cummins, Daimler AG, Diebold, Duncan Energy, DuPont, EarthLink, Ecolab, Energizer, Entegris, Enterprise Products, Estee Lauder, Ford Motor, FPL Group, G&K Services, Group 1 Automotive, HCP, Heidrick & Struggles, Hospira, ICON plc, Iconix Brand, Imation, KC Southern, Kinetic Concepts, Landauer, Lazard, LCA-Vision, Lennox International, Lexmark, Lincoln Electric, McGraw-Hill, National Oilwell Varco, NBTY, Newmont Mining, Nexen, Office Depot, optionsXpress, Pentair, Pinnacle, Potlatch, Signature Bank, Sonic Automotive, Spartan Motors, Stanley Black & Decker, Taiwan Semiconductor, Teleflex, Tellabs, Tyco, U.S. Steel, UAL, Under Armour, UPS, US Airways, Valero Energy, VASCO Data Security, Wabtec, Waddell & Reed, Waters, Western Union, Whirlpool, Whitney Holding and Wright Express.

Earnings to be reported during trading hours include: FormFactor.

Earnings to be reported after the close include: Aflac, Aftermarket Technology, AMAG Pharmaceuticals, American Campus Communities, Amkor, Anadys Pharmaceuticals, Arris, B&G Foods, Basic Energy Services, Blackbaud, Boston Properties, Broadcom, Buckeye Technologies, Buffalo Wild Wings, CB&I, Century Aluminum, Compass Minerals International, Concurrent, CTS Corp., DaVita, Delphi Financial, Dreamworks Animation, DTE Energy, East West Bancorp, Encore Capital, EPIQ Systems, Exactech, Fidelity National Information Services, First Industrial Realty, Flextronics, GulfMark Offshore, Harleysville Group, Hutchinson, Interactive Intelligence, JDA Software, Jones Lang LaSalle, Kona Grill, Life Technologies, Lithia Motors, Manitowoc, Mercury Computer, MIPS Technologies, Montpelier Re Holdings, Nalco, National Instruments, New Alliance Bancshares, Norfolk Southern, Panera Bread, Parametric, Parexel, Phase Forward, Portfolio Recovery Assoc, Questar, RadiSys, Range Resources, RenaissanceRe, RF Micro Devices, Robert Half, Rock-Tenn, Silicon Image, Sunoco Logistics, Super Micro Computer, Switch & Data, Torchmark Corp, Trustmark, Ultimate Software, USANA, Vitran, Waste Services and Websense.

Economic reports due: ICSC-Goldman Sachs store sales, Redbook, S&P Case-Shiller home price index, consumer confidence (the consensus expects 53.5), and State Street Investor Confidence Index.

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