Let’s take a simple quiz and answer the following multiple choice question.
The stock market is hitting new highs because:
- Corporate earnings are at an all-time high.
- The economy is recovering.
- The market is being manipulated by the Federal Reserve Board.
- Investors lack common sense.
Corporate earnings are supposed to drive stock prices. That used to be true, before the market was made dysfunctional by Fed mingling, high-frequency trading, overbearing regulations and other factors. It’s not true anymore. At least not now.
The stock market has been setting records, even though S&P company earnings declined 13% in the first quarter of 2015. That follows a 14% declined in the fourth quarter of 2014. Do you see a trend here?
As our friend Charlie Bilello of Pension Partners, LLC pointed out on Contra Corner, six out of the ten major S&P 500 sectors showed year-over-year declines, including consumer sectors, which were supposed to have benefited most from a decline in gas prices.