Without being too existential, I’m beginning to wonder why the stock market continues to bound over the famous “wall of worry.” GDP growth is slowing. Who cares? Unemployment is going down bitterly slow. Who cares? The Congressional children may cause a national disaster by not raising the debt ceiling. Who cares? The budget deficit this year is $1.5 trillion. Who cares? Did I mention we’re involved in three shooting wars that have cost over $3 trillion so far, but who cares? Does it matter that tax receipts have fallen from 20% to only 15% of GDP, but who cares anyway?
Yesterday, the market closed at three-year highs, breaking key technical resistence levels. Yes, it looks like we are heading toward the good/bad old days when the Dow was over 14,000.
So, what is driving the market? What does matter? Ostensibly, it is corporate earnings, which have been surprisingly good for the first quarter. Textbooks tell us that stock prices reflect earnings expectations. Do we really believe earnings will continue to be unaffected by everything else?
Or, the stock market could be another asset bubble, like the housing bubble, created by the Fed to prop up our sputtering economy, but does it matter?