Wall Street Jigs as Main Street Burns

The stock market Friday hit new highs on the road to recovery. The S&P 500 rose to 1,145, the Dow cleared 10,618, and the NASDAQ 2,317—all new highs since the market crashed in Fall 2008. As a consequence, my FOX INDEX has reached its new post-crash high [chart]. The INDEX measures as a percentage the distance traveled from the market’s March 9, 2009 bottom, while also marking the distance remaining to its pre-crash healthy level (12,000 Dow, 1,300 S&P, 2,500 NASDAQ). As of today, the distance traveled from the bottom to healthy has covered 76.5% of the full path.

It seems counter-intuitive that the stock market would prosper as job losses grow. But we know it isn’t. Wall Street loves lean corporations that prove they can permanently trim overhead. As Peter Coy, Michelle Conlin and Moira Herbst write in a recent important Business Week article:

cutting has been good for corporate profits. Earnings rebounded smartly as companies kept payrolls down after the 2001 recession; by 2006 profits had hit a 40-year high as a share of national income, at 10.2%, according to Bureau of Economic Analysis data. The credit bust sent that figure plunging to 5.6% during the final quarter of 2008. But over the past year corporate profits' share has rebounded to 7.4% of national income, equaling the 40-year average.