The Mindset for Wealth

Does This Stock Market Rally Have Legs? If the stock market were a broadway show, it would be getting an standing ovation right now. Who wouldn't welcome and cheer a 38.5% move to the upside in less than five months? And we should give credit where credit is due for yesterday's record performance in the markets - better than expected earnings from AT&T, Ford, and eBay.

But what are we applauding at this point? The way I see it, AT&T is enjoying the same success as Apple - what appears to be never ending demand for the iPhone. Ford, well, it is hard not to get bailed out, restructure, and in the process, get rid of mountains of debt and look better than ever. And you would expect eBay - a bargain shopper's paradise - to do well in tough economic times. But, the good news does not stop there. Of the more than one-third of the companies that have reported their quarterly earnings, 76% have surpassed analysts' estimates (Thompson Reuters).

But are these really results we can bank on? If the dismal results of Microsoft, American Express, and Amazon that were announced late yesterday are any indication of the real health of our economy, then probably not. More importantly, much of the 'profitable' performance of most of the companies with positive earnings news has come from cost cutting - not growth, not improvements in top line revenues. In other words, as companies continue to shed jobs at alarming rates, they are running leaner and more efficiently.

The problem is there are only so many costs that can be cut. So better than expected through cost cutting is not a sustainable business model to improve financial performance. The other problem - not enough companies are hiring to offset workers who have been laid off. It begs the question, will these newly unemployed be able to find work in time to  stave off another wave of foreclosures? Have we really turned a corner because improvements in quarterly earnings?

It is easy to get caught up in the euphoria of the stock market rally - we are all in dire need of some positive news.  However, it is a risky endeavor to bite at the hook because there are a lot of other headlines that have not gone away - states facing budget crises, levels of unemployment are too high, continued uncertainty about the effectiveness of the bailout, questions about inflationary pressures, to name a few.

For me, I will be patient before buying into the good news from Wall Street. Remember, too, Wall Street hasn't always been an open book or played fair with all of us on Main Street. I have to ask, what do they know that we don't?  I would rather see some of these other issues addressed, clarified, or put to bed once and for all before jumping on the band wagon.