Why is the stock market rallying right now?

Interest rates trending lower plus the largest companies in the world are making insane amounts of money and they drive much of the market.

just don’t understand. High employment, uncertain presidential election year, high interest rates, record inflation. But the stocks are trending the highest ever.
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Your interest rate and inflation statements are no longer true. Both are trending down from last year.

Business is good, especially for large cap. Look at the strength from big guys like Walmart, Costco, Amazon, Microsoft, and Nvidia. 2nd half of the year will be hard pressed to stay this strong overall, but we are riding right now.

I’d argue due to inflation that stocks are the only thing currently that can yield a higher return than the inflation rate.

Yes inflation is slowing but during the highest points many people racked up debt and need to pay it down.

Also capital is expensive so you see less money going towards risky startups and more money towards established companies and blue chip stocks. Add in record profits in blue chips yielding good dividends and it makes stocks a good investment currently. We are seeing a 15% return on our portfolio currently

What I don’t understand even more is the older guys at work telling me they can’t retire because Biden crashed their 401ks

Because businesses are making money.

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Why is the stock market rallying right now?

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Short answer: There is enough smoke and mirrors over the likely coming economic problems that the market's hopium-tinted view reigns supreme.

Longer answer:

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High employment

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High employment is a good thing. There being so many jobs available means competition for workers pushes wages higher in a way far more organic and economically tolerable than raising the minimum wage. This increases GDP which translates into higher profits for companies.

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uncertain presidential election year

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Many election years are uncertain. This would only really bother the market if you had someone with a strong possibility of winning who was very unfriendly towards business (a lesser version of this can be seen going on in New York right now with the Trump "fraud" case). Right now the market's belief may be that either things will remain the same (Biden) or get better (Trump), in other words it's a no-lose situation so it doesn't really matter.

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high interest rates

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The economy seems to be adapting to the rates (at least for now) and the market is reacting to that. Rates had been unrealistically and historically low for a very long time, I think the historical average is somewhere around 5%. In an ideal world, this means getting the economy back into some sort of balance with more gradual heating and cooling periods which last shorter times rather than the longer and more intense periods we have seen in some instances over the last decade or so (like with housing).

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record inflation

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Inflation has come down tremendously over the last year or so. Even at its worst inflation may have been "near record" to what we saw in the early 80s, but it's measured so differently now that it's a useless argument.

All that said, here's why I see economic problems hiding behind all of this (and why I think the market's view of the world through its lens of hopium is going to end up biting a lot of people in the arse):

Consumer debt continues to grow strongly while much of that debt is being created at historically high credit card interest rates, which is likely a large part of why we continue to see delinquency rates continuing to rise. Those interest rates are also why this is likely to not change anytime soon.

The consumer's ability to buy goods and services is a foundational function. Real hourly wages have grown only .09% over the last year, while Real GDP grew far more. This means a LOT (perhaps a majority) of that growth has been on the backs of consumer credit card debt at the historically high interest rates I mentioned earlier. That's untenable.

This excess debt spending as well as the glut of federal money pushed into the economy during COVID (and after) is keeping inflation sticky. That too is not going to change anytime soon (unless consumers begin defaulting on their debts and Congress pulls back on spending).

As to the market itself, around 30% of the market's growth comes from the Mag 7 stocks. Without those, the market's growth would be mediocre. In the same breath we hear portfolio diversification is important, we're seeing more and more eggs lumped into only a relatively few baskets. That should be concerning, but the high of watching NVidia soar is just too attractive and supports that hopium-tinted view.

So what it boils down to is that, economically, we're in a race to see if wage growth can outpace the stickiness of inflation before consumers begin defaulting. That's going to be the difference between the consumer debt bubble popping or quietly deflating. The market doesn't care, it just sees profits and GDP.

I don’t think you really keep up with the news.

Interest rates are higher, but still historically at mid levels and are expected to go down by mid year. Unemployment is very low and most companies are having a hard time finding enough job prospects. Corporate profits are very good. Inflation is half of what it was last year and was never at historically high levels. Yes, uncertainty in the election, but it’s only February.

"The stock market" has been hammered on and off for the passed two years. Big tech included. But the earnings scorecard for the S&P is looking healthy:



Small caps aren't looking very pretty but the numbers are improving as more companies report:



In addition the layoffs improve earnings and margins and they aren't firing the people who purchase equity funds without indiscriminantly.