An economic stimulus plan, while it may be necessary, doesn’t mean that we can just sound the all clear in the stock market. I don’t particularly enjoy being a person who is so cautionary when the stock market seems so excited, after all I am cheering for the stock market to do well and I hope a bull market continues soon.

Why do I post about this today? I say this because today the S&P 500 rose by about 3% on investor optimism that the economic stimulus plan would be passed very soon. In fact, for the week the NASDAQ gained about 7%, which is quite startling given the amount of bad economic news there has been. Granted, the stock market’s performance over the last year has built in a lot of bad economic news, and I don’t necessarily think there is a huge downside from this point, but it simply doesn’t make sense for stocks to stage massive rallies at this point.

This morning the Bureau of Labor Statistics reported that nearly 600,000 Americans lost their job in the month of January alone. This was the single biggest monthly loss of jobs since 1974. The unemployment rate jumped to 7.6%, and it is sure to rise more in the coming months. Despite this data, the stock market was off to the races as if nothing was wrong.

There have been many arguments regarding what is the right type of economic stimulus for our economy at this point. Democrats and Barack Obama lean more toward creating jobs by spending money on infrastructure building, while Republicans want more tax breaks for small businesses. Since the Democrats have the majority in congress and the Presidency the final economic stimulus bill will certainly be more to their liking, but regardless of who’s version gets passed this will take a long time to work through. Just a note of caution to all investors, remember that we are in a completely different economy than any of us have ever seen, and a cure will take quite some time.