A typical sharp economic rebound?

Lots of people think the rise in the stock market is evidence of a sharp economic rebound. Can this be so?

History on markets stress that people tend to react to the way past events unfolded. Not necessarily how current events would suggest one should act.

This is why in the 1970's interest rates always trailed inflation - i.e. people couldn't believe interest rates would go so high.

Now, people are discounting the negative fiscal policies because they don't see the US going the way of the State of Michigan or the American car companies.

Stepping back a bit, it's also like housing prices going up much faster than people's incomes - would you or wouldn't you buy into it? Most people bought into it the same way they used to see pyramid schemes - i.e. the late-comers get screwed.

Right now companies are getting good profits by cutting employment. Will these profits be sustainable (and, if so, where will they keep coming from if the consumer/purchaser doesn't have a job and after (maybe 5-10 years) unemployment isn't extended any more?)?

If one thinks of the price of a stock reflecting the "present value of the future value" of a stream of earnings, then the prices might be low if the future earnings become highly inflated and the discount rate remains - as it was in the 70's - below the inflation rate.

What is clear from current policies in Washington is that jobs are very unlikely to be coming back and in terms of purchasing power, Americans will be living much more like a European lifestyle where people have less, do less and look forward to much less in the future.

And, because the US has such a burden of the religious right, it may be worse than the more secular socialist environment of Europe.

Who knows?

Whatever is said, the sharp rebound does not reflect the economic snapback that is typical of most interest rate led recoveries!