The market is going up for reasons similar to the ones that drove it down last fall and this winter; uncertainty. Here is a simple example, in March most analysts thought that Bank of America will not survive, or it will lose money for many years. The stock was driven down to under $5. The company and some analysts now believe that BA will survive and may make about $1 per share next year. That is far lower than $5 estimated a year ago but is much higher than zero or a loss. So majority of investors believe that to be the case now and are willing to pay $11 today.
Do this same exercise for all of the stocks in the DOW and you will come up with the answer to your question. Bottom line is, today most investors believe that they got it wrong in March when they sold everything and thought the world economy will be in a depression for years. Is there a chance that the current wisdom will prove to be wrong again? Quite likely.
As for the economy and the factory output, they will keep going down but as long as they are not getting worse than last fall, investors will be positive.
One reason my clients have done better than the rest is because I never bought into the depressed scenario in March and sell everything at the bottom nor am I buying into the euphoria and buy everything. On the whole I am waiting for a recovery in China to take hold. That will repair a lot of problems for exporters to China like Japan and Europe and Canada and Australia and even USA. With this as a foundation, economies will start to build themselves again. This won't be easy nor quick, making the current strategy of dividend payers and bonds a reasonable one. Although investing in China is my next objective when a second bout of pessimism hits the market which could happen any time.
Can I be wrong in this wisdom? Quite likely.
