WASHINGTON - The question about the stock market is whether the bull is a bubble. The 1990s' "tech bubble" and the recent "housing bubble" have conditioned us to think that almost any sign of investor craziness is going to end badly - and the stock market seems a bit crazy.
At the end of November, reports Wilshire Associates, stocks were up 28 percent for the year, representing a gain of about $4.8 trillion. From the market's recent low in March 9, 2009, when the economy was in a tailspin, the increase has been 180 percent, or nearly $15 trillion.
If you dislike this comparison, then measure the gain since the market's pre-recession high on Oct. 9, 2007. The increase is 21.5 percent, or $4.2 trillion.
What's more, there's a widespread expectation that stocks, despite temporary setbacks, will continue to advance. After all, the Federal Reserve is pumping $85 billion a month into financial markets - about $1 trillion a year - by buying bonds. Much of that money (the theory goes) props up stock prices.
The impending change in leadership from Ben Bernanke to Janet Yellen as Fed chairman is viewed positively. Yellen will wait longer, it's said, to reduce the Fed's pump-priming. As a Wall Street Journal headline put it:
"'Dovish' Yellen Keeps Gloom at Bay: Incoming Fed Chairwoman's Message Has Given Comfort to Investors and Fueled Stocks' Resilience"
Still, all the happy talk will be just that if the market's surge turns out to be a bubble, which - once burst - wrecks confidence and, perhaps, converts the plodding recovery into a new recession. So, is today's market a benign boom or a bad bubble?
Here are three crucial facts.
First, investor sentiment has clearly shifted toward optimism. One survey of financial newsletters finds that 57.1 percent are "bulls" (expecting higher stocks) and only 14.4 percent are "bears" (expecting lower stocks). The ratio of almost 4-to-1 is the highest since March 1987, says economist Edward Yardeni of Yardeni Research.
Among his clients - pension funds and other large investors - "there's less anxiety and more willingness to see the upside," he says. "When we didn't go over the fiscal cliff (the cancellation of all the Bush tax cuts) at the beginning of the year, there was a huge sigh of relief. People had anxiety fatigue. . . . No one talks anymore about the disintegration of the eurozone."