The S&P 500 has rallied 28 percent since it reached a one- year low on Oct. 3, gaining as companies from LSI Corp. to Lennar Corp. reported earnings that beat estimates. Profits for the 500 companies will rise 13 percent in 2012 after climbing 9.9 percent in 2011, estimates and data compiled by Bloomberg show. Analysts boosted forecasts by 0.2 percent in the four weeks through March 22 to $104.37 a share in the biggest increase of 2012. They fell during January and February, the data show.

The Commerce Department said last week the economy grew 3 percent during the last three months of 2011, more than any quarter since June 2010. Equity gains came as the Chicago Board Options Exchange Volatility Index, or VIX, sank 64 percent since the end of September, a record two-quarter retreat, Bloomberg data show.

"It's not just that people bought equities because they had nothing else to do with their money, it's that the actual underlying businesses had done pretty well," Michael Shaoul, chairman of New York-based Marketfield Asset Management, which oversees $1.5 billion, said in a March 28 interview. "As people start to realize this, you'll see a migration of that safe haven trade out of gold and into the portions of the global equity market which are really able to benefit."

Volatility Notes

Rallying stocks and the plunging VIX also caused demand for the VelocityShares Daily 2x VIX Short-Term ETN, known by the symbol TVIX, to explode as traders sought a cheap way to protect gains in equities. Interest in the note, which owns VIX futures, was so great Credit Suisse Group AG stopped issuing shares in February after its market value soared to almost $700 million from $162.8 million at the end of 2011.

The combined value of the five biggest VIX-related securities traded on U.S. markets swelled to $2.8 billion as of March 29, more than doubling from the level at the end of 2011. Their market capitalization rises as their sponsors issue new stock to keep the share prices aligned with an underlying index.

The 9.9 percent increase in earnings last year wasn't enough to spare the S&P 500 from its smallest annual move since 1947, leaving the valuation measure at 13.6 times reported profits on the last day of 2011, 20 percent below the average since 1954, data compiled by Bloomberg show. Since then, the price-earnings ratio climbed to 14.6, about 11 percent below the historic mean.

Annual Start

"The huge monetary thrust has market speculators timing when the liquidity wave will break," Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel Nicolaus & Co., which oversees more than $116 billion in client assets, said in a March 30 phone interview. "Market participants are positioning for a pullback in risk-taking. Investors should consider a second-half growth scare in the U.S. economy, which is not out of the question."

Companies in the U.S. may struggle to increase earnings as profit margins, or the percentage of sales converted into net income, shrink. Margins for all U.S. companies reached 13 percent last quarter, higher than any time since 1950, according to data compiled by the Commerce Department. For the S&P 500, they've narrowed this year by 0.2 percentage point, according to data compiled by Bloomberg.