How can the Dow being doing so good, when the economy is doing so bad?

Question

What's fueling the rise, when people are losing their homes and jobs, and mortgage companies are going broke?

Thanks Mr. Bush and Company!

Answer 1

Several factors-
Inflation, we've been paying for this War with big spending and we've had to monetize the debt to it! So too much money is chasing too few goods and services, hence there's more trading even if the dollar is worth less. The dollar being as weak as it has been, means tere is more corporate profits in these worthless dollars.
Globalization-Companies are making their money from overseas customers. Weak dollar again. I don't approve of this and I think it is a dangerous trend.
Welcome to Stagflation land. I haven't been here since the late 70's. Entire generations haven't experienced this.
Be sure to thank Bush and Greenspan!

Answer 2

Investors try to maximize return on their investments. They have a choice between assets that have a fixed rate of interest like bank CD's government bonds etc and stocks which give the the rights to the profit stream that companies generate. The stock market will go up when profits rise, but it will also go up when interest rates fall because in comparison with bonds, stocks become more attractive.

Answer 3

I used to answer this question a bit differently, now that our economy is coming out of recession. If the economy is in recession, then the question is a no-brainer - the stock market reflects long term health of companies (their asset evaluation) and has little to do with short run investment or GDP.

But now that the economy is finally out of recession, we see that the economy has some structural flaws - like the continued loss of retail manufacturing, rising labor participation rates, inequality and stagnation of middle incomes. But none of these things really have to do with the profits of companies. Or, to the extent they do, people ignore it, and continue to gamble away in the stock market. After all, US firms don't have to sell just to the US, they can sell abroad.

Answer 4

First of all, I can tell by your little rant against President Bush, you are a liberal and allowing your politics to cloud reality.

1) unemployment is still very low
2) the economy is growing at a nice pace
3) inflation is yet a major concern.
4) productivity adding profits to the companies bottom line.

Being a stock trader is how I make my money. A presidents control of the economy has always been greatly exaggerated.

Answer 5

First of all,things are going as bad as you think.Despite being bugged by the subprime crisis,the global economy,inclusive of the US,has a strong fundamental ,and is ,therefore ,able to absorb the economic shock.Plus,recently the Fed has cut interest rate to maintain cash liquidity in the market.People are able to get loan at a lower interest rate and have more disposable cash.Thus,they have the money to invest in stocks

Answer 6

I'm also wondering. Where are they getting the money to invest?