James Surowiecki rejects the stock market bears who argue that the recent stock boom and high corporate profits are based on a speculative bubble created by the Federal Reserve.
“It’s certainly unusual for corporate profits to soar during a slow recovery. But…when it comes to the role that corporations play in the U.S. economy, the present looks very different from the past… Take taxes: one big reason that after-tax corporate profits are much higher than their historical norm is that corporations pay much less in taxes than they used to.”
“Then, there’s globalization… The global economy, even with its current woes, is projected to grow more briskly than the U.S. economy over the next decade, so corporations will continue to benefit. Finally, the decline of unions and the sluggish labor market have enabled corporations to cut payrolls, thus keeping profits high.”
FT Alphaville highlights a new forecast from Goldman Sachs predicting that the S&P 500 stock index will soar to 2,100 in 2015.