Market is up; are happy days here again?

Mar 8, 2013 The Baltimore Sun

Economist John Kenneth Galbraith once observed that there are two kinds of market forecasters, those who don't know and those who don't know they don't know. That is well illustrated by the current disconnect between Wall Street and Main Street, as the market's leading indicator, the Dow Jones Industrial Average, continues to surge forward while the overall outlook for the U.S. economy appears mixed at best.

The Dow closed Wednesday at an all-time peak of 14,296.24, then broke the record again Thursday, and many believe that the bullish trend will continue even if there is some profit-taking in the short term. Price-earnings ratios are not at levels more typical of market peaks quite yet, and the Dow still hasn't fully recovered from October 2007 levels when adjusted for inflation.

Naturally, conservatives have been quick to suggest that the robust Dow shows that sequester cuts are welcomed by Wall Street

-- or at least are not as threatening to the economy as President Barack Obama and the Democrats have suggested.

But that would imply that the market is responding in some logical, thoughtful way to Washington's political establishment, or even to the economic reality as most of us experience it, and not the chaotic hurly-burly of global markets and unpredictable investment decision-making.

More likely is that nobody has any idea what the rising Dow means, nor can they, as Galbraith counseled, predict what's going to happen next. But the bull market does point to a resiliency in the economy and perhaps to some degree reflects strong corporate earnings (not to mention low borrowing costs, thanks to Federal Reserve monetary policy), fundamentals that should support further growth.

Whether that growth will benefit most Americans or just those at the top of the corporate heap remains to be seen.

Many Americans certainly will see the market upswing reflected in the monthly statements of their investment and retirement accounts, at least to the degree they have money in the stock market -- and many people do.

Others are not so fortunate, but they, too, may yet benefit if rising stock values persuade more companies to expand and hire. Indeed, early indications suggest the private sector may have added nearly 200,000 new jobs in February.

Unfortunately, it will take a lot more than that to restore employment and consumer earning power to pre-recession levels. This recovery has featured no lack of corporate profits, but too little has trickled down to workers.

The bottom line is that whether another record Dow closing is set today or next week, it could be a sign of improvement or just another bubble ready to burst. Whatever the cause, it's out of our control. Better to focus on what is within our power, at least theoretically -- demanding our elected leaders bring a balanced and rational approach to growing the economy and reducing the budget deficit.

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