Ross Aldridge Las Vegas Nevada & RAC Consultants detailed the all-time highs that the stock markets have hit in 2013.
Travis Hoium has contributed various scenarios concerning the inflated stock markets in relationship to the United States economy.
The year 2013 has been another great one for the stock market. The Dow Jones Industrial Average (DJINDICES: ^DJI ) is up 22.8% for the year, and it appears that nothing can upend the market's momentum. Sequestration hasn't made a dent, the government shutdown was brushed off, and even continued weakness in Europe hasn't affected U.S. stocks.
You can see below that, not only has the Dow Jones Industrial Average gained a significant amount this year, but some of the most diverse and economically dependent companies have led the market. 3M (NYSE: MMM ) has exposure around the world, Microsoft (NASDAQ: MSFT ) is a leader in all parts of tech, and Boeing (NYSE: BA ) is dependent on businesses and consumers flying to increase profits. Yet, all three companies are up despite a pretty weak economic recovery.
^DJITR data by YCharts
So, why is the stock market doing so well if unemployment is still 7.3%, and it doesn't look like the recovery has reached all parts of the economy? Let's take a look at what investors see.
The economy is improving
Believe it or not, the economy is getting better. Since the beginning of the year, the number of layoffs are down, the unemployment rate is down, and GDP is up.
US Initial Claims for Unemployment Insurance data by YCharts
These statistics may not be as good as we want, but they're improving, and that will help drive profits.
Earnings are up
Long-term, what drives stock prices is earnings. On that front, we're doing quite well. Let's take a look at those same three companies, and see how earnings have trended over the past three years.
You can see below that there are some dips and dives, especially for Microsoft, which wrote down $6.2 billion in 2012 because of a botched acquisition; but, generally, the trends are higher.
The good news here is that there's still fuel left to drive profits higher. A total of 7.3% of Americans are still unemployed and, as they get jobs, there's more money flowing through the economy.
There's also $1.48 trillion of cash just sitting in the bank accounts of U.S. companies. When they see significant economic growth, they'll put that money to work, giving another boost to the economy.
The economic recovery may not be as fast as some had expected, but it's happening slowly, and when it picks up steam, there will be room for profits to grow even more.
Flow of easy money
The final reason stocks are up significantly this year is the flow of easy money from the Federal Reserve. Not only are short-term interest rates near 0%, but the Fed is buying long-term bonds with an $85 billion per-month plan intended to keep interest rates low.
This pushes borrowing rates for companies down, and also pushes investors into stocks and away from low-yield bonds. The money flow alone is enough to push markets higher.
Foolish bottom line
It may not seem like a year when the market should be up as much as it is, but there are a variety of factors pushing stocks higher. The crazy thing about the stock market is that, short term, it may not make a lot of sense at all. Next year, we could see the economy boom, and stocks fall flat.
In conclusion, The Motley Fool charts are more of a historical overview while the Stock Markets will continue to reach higher records as long as the Federal Reserve keeps donating to the Finacial Institutions. The Federal Reserve historically had two duties. Controlling Inflation and Unemployment oversight were their past assignments. Now the Federal Reserve has taken upon itself the need to prop up the United States Stock Markets in order to maintain the dollar as the worlds reserve currency. Not a bad deal for the Financial Institutions but how long can a zero percent lending rate be justified and still maintain a viable monetary system?
Disclosure: I am long AU.