Corporate profits are setting records, but that doesn't mean it's an easy time to make money in the stock market.
As the companies of the Standard & Poor's 500 march toward a record 14 quarters of double-digit earnings gains, the S&P 500 index has surged a whopping zero percent this year, through Wednesday.
Even the index's oil giant, Exxon-Mobil, saw its shares flat-line after reporting a stunning $10 billion in quarterly profit.
Why the tepid returns, and where will they go from here? A rally Thursday, driven by good economic news, is a good sign. But in this bull market, now three years old, the pattern has been performance that's about half as good as the typical bull market.
For now, the market is battling worries about the economy and also some deadweight of the past - stocks in some ways are still working out of the bubble reached at the turn of the millennium.
"There's no mania like the 1990s. Those conditions don't exist right now and probably will not exist for a long time," says Sheldon Jacobs, who publishes the No-Load Fund Investor, an advisory letter for mutual-fund investors. "We're in a single-digit milieu," he says, referring to current share-price gains,
Forces that will drive the market in coming months include:
• The economy. There's concern about high energy costs and a softening of home prices - a pivotal source of consumer spending power in the past few years. Thursday's economic news was positive, however, showing strong worker productivity and growth in the service sector.
• Earnings. The growth rate of corporate profits often weakens after setting records. More double-digit earnings growth is expected next year. But companies have begun to scale back expectations.
• Short-term patterns. Market watchers, looking to historical trends, say it's not unusual to have an off year, such as 2005, after a presidential election. Looking ahead, the November-May period has generally posted better stock returns than the does the summer and fall.
• Long-term trends. Some strategists are shifting their attention overseas, based on the superior growth prospects of foreign markets, and to protect against the possibility of a falling dollar in the long term.
Another worry is that the looming retirement of the baby boom generation could hurt US share prices as retirees tap their savings. But some experts say this demographic worry may prove overblown.
The boomer retirement wave is obviously significant, with implications for everything from the federal budget to home prices. But one study of past demographic changes, by James Poterba of the Massachusetts Institute of Technology, calls into question forecasts of a boomer-driven market meltdown.
For now, investors are focused on nearer-term issues.
With emerging markets overseas posting huge gains this year, mutual fund investors have been pouring more money into world funds ($9 billion in September inflows) than domestic ones ($1.1 billion for the same period, according to the Investment Company Institute).
"The domestic market still seems to show signs of 'wanting' to go up," writes Don Cassidy, an analyst at Lipper Ana lytical Services in Denver. But "we think the rest of the year is more likely to see world markets doing a bit better than domestic stocks."
Some market strategists take a bullish outlook, hoping for a year-end rally as investors look toward the time when the Federal Reserve can stop raising interest rates to keep inflation under control. Gas prices have been falling recently, and Thursday's economic reports included signs that higher energy prices are not yet rippling outward into labor costs.
Still, the overall mood of the market is hardly euphoric.
Investors remain sobered by the harsh deflation of the high-tech stock bubble in 2000. Many tune out hype, and focus on the earnings that should justify share prices.
In the inscrutable world of Wall Street, profits and stock performance can often diverge in any given year, but they tend to be closely related over the long run.
In essence, a stock owner is buying a share of a company's stream of earnings. The ratio of a company's share price to its earnings - the P/E ratio - has been falling back toward historic norms.
"P/Es will work their way down to the long-term average," predicts Mr. Jacobs, the news-letter publisher.
Some even have a more tempered view of backward-looking numbers.
Thomson Financial, which tracks corporate earnings, has its own estimate of the number of consecutive quarters that the S&P 500 firms have posted double-digit earnings growth. "We're tracking nine consecutive quarters," not 14, says analyst John Butters, citing a 9.5 percent gain 10 quarters back.
Even without rounding up, that's still a rare feat.