In the shorter term, human behavior, changes in sentiment, will cause prices to move more quickly than earnings changes. Another good sign for the market is simply a lack of trouble in the world that would adversely affect the market. We're not at war with anyone, and don't have domestic turmoil of any sort. The market is comfortable with that, as it doesn't like not knowing what's going on and what will happen next. The only danger that Strong sees is the desire of some investors to engage in short-term speculation about the market's future, and price stocks according to that speculation rather than on any concrete financial evidence.
Speculation can lead to unwarranted assumptions about what's reasonable and what's going to happen.
Holding speculation in check is Alan Greenspan, chairman of the Federal Reserve Board. Greenspan has raised interest rates three times since last June to keep both speculation and inflation in check. Greenspan has a number of times made statements whereby he wants people to logically consider the nature of what it is they are buying and what it should be worth rather than simply buying any stock that goes up at any price. Normally, investors dislike interest rate hikes, as they tend to minimize profits by making it more expensive to borrow money. In the case of Greenspan, says Strong, the market has learned to anticipate when he is going to raise interest rates and prepare for it.