How can the stock market be doing so well in a sluggish economy ?

I'm new to stock market investment and still learning how the whole thing works, but how can the stock market be doing so well (Dow hitting unprecedented highs...etc) while all expectations indicate a sluggish economy (real estate going down, rising unemployment, rising inflation....etc) ???? Shouldn't the stock market be going down now taking a bearish pattern ????

Remember you are buying companies, not stocks. Corporate profit margins are at record levels. From a historical context, interest rates are still very low, and money is sloshing around pretty freely. Companies continue to post productivity gains. Maybe not necessarily in domestic markets where there has been some softening in the consumer, but international demand remains solid.

As long as corporate America is able to continue to post earnings growth, the stock market will do fine.

Post 911 era...

The stock market is doing good because people are finding confidence to invest back in the market.

After 911 after Bush declared war on Iraq everyone pulled out their investments and the Dow plunged from 12k to 8k.

Now that we have 2 strong Democrat candidates running for office and their intentions to remove troops, FUTURE STOCKS are rising.

War is one of the main reasons people lose confidence in investing. It can have a dramatic impact on economy.

War is not free. We're spending 200 billion this year funding the war. That means there will not be any social security for the U.S. citizens when they retire.

In the past, people depended on social security to help them when they retire. Now, you have to find other ways to fund your retirement like 401k and IRAs.

What America needs is a change. We'll see one in the near future.

My feeling is that the price of stocks is determined by what people are willing to pay for them. Psychology is far more important than economics. Remember that you are buying stocks, not companies. Look at the charts of the individual charts. Turn off the evening news. The charts don't lie.

The world is flush in money. Thus, we are getting buyouts and people putting more and more money in the market. In other words the Federal Reserve is creating another asset bubble. Real estate popped and stocks will be next. The only question we have now is how far will it go?

I agree with you. But, as you might know, price doesn't always reflect quality. You can say that buying the average stocks right now is like buying 20 year old sedan for about 60k. One plausible explanation for this condition is the 'weight of money' argument. People simply have too much money. Since too much money chasing so few investment product, the result if inflation in the stock market. One more thing to ponder. You said the stock market is doing so well because it's going up. But what if the price of your favourite food and gadgets goes up by 30%? Would you say that they're doing well? If yes, for whom? Remember, price increase, if not justified with quality increase, is inflation. It means we're paying more for the same thing. Still think the stock market is doing well?

Indeed real estate could derail things. That is more of a concern than the other factors you have mentioned currently. So far it has not happened. The very low interest rates are making the stock market the only viable option for investments currently and all the money pouring into IRAs and 401ks is supporting things nicely.

You are certainly correct to be concerned that it may not continue, but historically stock prices in general are not unreasonable. In fact some are downright cheap. Others are somewhat expensively priced. But with 4.6% interest rates what other options are there?

as an example,, take Caterpillar,, their sales last quarter in the U.S. was down 9%, but sales overseas was up 14%,, and by having a large presence overseas where every currency in the world is higher against the dollar,, they made almost 4% in currency exchange alone!! Companies that are active in Europe and China and Latin America are making money,, but not much comes from their U.S portion. Just having investments in the foreign countries has made them tons of money because of the weak dollar,, makes the foreign investment go higher. The U.S. economy will continue to fall,,

You are confused.

The economy is sluggish ONLY IN THE UNITED STATES OF AMERICA.

All the 30 companies included in the Dow Jones Industrial Average have operations all over the World.

In addition to the whole international issue - which is correct, but has been covered pretty well by previous responders - it's probably worth mentioning that when viewed on the basis of P/E, the stock market really isn't doing all that well.

P/E multiples are more compressed now than they were before the recent run up in the stock market. Investors aren't willing to pay as much for earnings as they used to be. It's just that earnings have been growing so fast that it hides the effect when you are just looking at prices.

mark my words: correction is coming