Italy still had a political mess on its hands on Tuesday, just like it did on Monday, yet the US market managed to set that issue aside as it rebounded 0.6% from Monday's drubbing.

Better-than-expected economic data and a shareholder-friendly earnings report from Home Depot (HD) helped things along, but the recognition that Fed Chairman Bernanke was still singing the benefits of quantitative easing in his semi-annual monetary policy testimony before the Senate Banking Committee made the real difference for yesterday's buyers.

Granted there was an attempt to take things lower while Mr. Bernanke was speaking, yet that selling effort faded the longer the Fed Chairman stuck to his dovish guns, telling committee members he didn't see much evidence of an equity bubble, that US bank exposure to Italian and Spanish debt is moderate, and that the sequester in its current form is going to be a near-term headwind for the economy.

What the market really clung to, though, was Mr. Bernanke's unwavering support for the Fed's monetary policy approach.

Things are more reserved this morning, even though the Fed Chairman is expected to repeat much of what he said yesterday in day two of his testimony before the House Financial Services Committee at 10:00 a.m. ET.

The S&P futures are trading slightly below fair value despite reassuring earnings results and guidance from Priceline.com (PCLN), Target (TGT), and Dollar Tree (DLTR), as well as an encouraging reading for business spending in the January Durable Goods Orders report.

Briefly, durable goods orders declined 5.2% in January (Briefing.com consensus -3.5%) after increasing a downwardly revised 3.7% (from 4.3%) in December.   That drop was led by a 19.8% decline in new orders for transportation equipment.

Excluding transportation, orders increased 1.9% (Briefing.com consensus +0.2%) thanks to a 13.5% jump in new orders for machinery and a 1.0% increase in new orders for fabricated metal products.  Those increases facilitated a surprising 6.3% gain in nondefense capital goods orders, excluding aircraft, which is a proxy for business investment.

Still, the 1.0% decline in shipments for nondefense capital goods, excluding aircraft, is the component that factors into Q1 GDP forecasts.  In that regard, the January report is a negative; however, the expectation that there will be a solid bump in shipments in February or March is a mitigating factor. 

The futures market slipped a bit following the durables report, though it should be noted headlines crossed shortly after that indicated Beppe Grillo said he would not form a coalition with Pier Luigi Bersani's Center-Left party in Italy.  This was not a surprise, but it provided a reminder that Italy still has a political mess on its hands that is unsettling for the eurozone.

On a related note, the 10-year Treasury note continues to benefit from the safety trade (and it hasn't hurt that Mr. Bernanke defended the asset purchase plan).  The 10-year note is up 10 ticks, lowering its yield to 1.85%.

The equity market did better yesterday, but the uncertainty in Italy and the uncertainty in the US about the looming sequester are likely to keep the risk trade in check for the time being, particularly since the Fed's policy can't entirely offset either.

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