What Is Up With the Stock Market?

In the face of all the global turbulence and challenges, the US stock market (i.e. S&P 500 Index) is up year to date through March 25th by 4.47%. Even international stocks (i.e. MSCI EAFE Index) are positive at 2.33%.

While this may seem irrational give all the negative headline news, the missing information is that corporate earnings continue to be strong. Profits for S&P 500 Index companies, as a percent of sales, were 8.2% in the fourth quarter of 2010, the third consecutive quarter above 8%. Indeed at the most recent meeting of the Federal Open Market Committee (FOMC), the FOMC called the US economy now on “firmer footing” and the labor market “improving gradually” but decided to continue its controversial easy money policies.

Investors are calming at least temporarily like birds in a cage returning to their perches (until the cages get banged again). The so-called Volatility Index (VIX) has fallen from almost 30 in mid March to just under 18 at the end of the day on Friday, March 25th, close to the same level it was almost a year ago.