The rally that refuses to die: Bolsa outperforms expectations with bright 2Q reports.

The bulls have continued to fatten in what was expected to be a leaner spell. The consensus was that the local market was going to consolidate at July's end and then possibly take a dive in reaction to a strong four-month rally. However, the momentum has continued and the local IPC index added another 220 points, or 3.1%, in the period from July 10 to August 10.

There are several simple reasons for this continued rise, but there have also been a few surprises. To begin with, the United States' GDP figure for the second quarter surprised the market to the upside, registering 2.4% growth. This was backed by a drop in jobless claims and a strong manufacturing report, all of which have traditionally been catalysts for Mexican company earnings. Added to this, we had the death of Saddam Hussein's sons and a general easing of international tensions (North Korea springs to mind), which have helped dissipate negative sentiments.

Locally, the Bolsa hasn't been quiet either. During the month, we saw the bulk of companies' 2Q earnings sway the market to the top or bottom of its ranges, yet it continued to climb.

This is because, in general, the results were better than expected, while for South America's leading wireless firm, Carlos Slim's America Movil, they were sensational. The company posted almost 50% growth in earnings and Ebitda (earnings before interest, taxes, depreciation and amortization) in the 2Q over the same period last year. The firm was rewarded with an almost vertical rally, which saw its stock rise 18% in just four days, leading it to a new high and pulling up holding company Amtel along with it.

However, euphoria didn't suffuse the market, and Slim's other biggie, Telmex, again showed a contraction. Never one to rest on his laurels, Slim has now turned his attention to streamlining a couple of his other assets--huge holding conglomerate Grupo Carso and financial Grupo Inbursa. Carso said it would shed some non-core assets to make it more competitive in its core telecoms, energy, construction and retail markets. Meanwhile, Inbursa is positioning itself to become the country's official money lender by announcing it will now only consider loans to government holdings, such as Pemex and the CFE.

Looking across the big names, the shine of America Movil has left other former market darlings in the dark. Walmart de Mexico reported modestly--investors have gotten used to this company beating its expectations, and it has now become last year's news. Maybe investors are playing it safe, but the country's other retailers are eyeing its position jealously and the competition looks like it is heating up.

In the media sector, Televisa and Azteca issued upbeat earnings and were rewarded with stock market gains. Comments by Televisa that it will increase its dividends also played well with investors. However, the market has driven up 27% since mid-March, and a wise head in this circumstance might decide to lock in profits now. In fact, we have witnessed a slowdown in volume, as markets abroad are beginning to look more attractive to investors' dollars. There has also been a shift back to U.S. debt from Mexican debt as the spreads diminish.

Recent comments and recommendations by leading U.S. brokers have also added to this sentiment, with analysts switching their recommendations and making disheartening predictions for the near future. Mexico's fate is not entirely in its own hands. In the currency market, the peso again showed its vulnerability to regional factors--shedding 22 centavos against the dollar in just three days.

The new legislative session may help give the market some direction in the coming months. With the PRI having taken back the reins of congressional power, there is a chance the three-year-long impasse may be broken, but don't count on it. Further political posturing may lead to the trumpets being sounded on this rally.

Gianluca Baratti works as a stock market analyst at Finamex Casa de Bolsa.