It seems like this should be a given because of the horrific performance of the stock market indices over the past year and a half, but some still continue to let the last few weeks of gains cloud their view of the stock market. I strongly believe that the single biggest cause of the excessive optimism regarding the stock market’s performance is the financial news networks. Each of the last few days I have watched and heard them speak of how stock XYZ is up a “stunning 100%” in the past 3 weeks, only to fail to point out that despite that gain the stock is still down over 80% in the past year or two. Quite honestly, the major of investors who have held that stock during its tremendous fall probably aren’t horribly excited about the 100% gain in the last three weeks.

This isn’t to say that the recent gains aren’t a good sign overall, they may well be. I know I am certainly glad to see the 20% gain in most major indices. It is important to keep things in perspective and realize that while a little progress may have been made, the market and the economy have a long ways to go and the future is still very unclear.

The next time you turn on the television to listen to your favorite business news network remember to temper your optimism and hope for a long-term improvement in the economic picture. Don’t allow yourself to feel like you may have missed the train that is the stock market shooting straight up. The volatility will most certainly continue and the recent gains have not changed the fundamentals of the market as a whole. It’s fine to appreciate the stock market gains that occur, but don’t let them skew your overall investment plans or make you feel as if you are missing out on the rally of a lifetime.

Many investors are always asking what will be the next catalyst for the stock market and what could drive weekly or even daily trading action in the market. For one day, one week, or even a few weeks; a single event that raises the confidence of investors or consumers can drive the stock market higher, but in the end it will always have to be the fundamentals that get things to turn around for long haul.

So many times throughout this economic downturn and horrible stock market action we have heard strategists on television giving a “compelling” reason that stocks have hit the bottom. Thus far all of there reasons have struck out. Why have they consistently struck out with their calls of a bottom in the market? Simply because the fundamentals of the economy and the stock market aren’t yet showing any signs of recovery, in fact they are getting worse and worse.

What exactly are the most basic fundamentals of the economy? Our economy is a consumer driven economy so the most important fundamentals are consumer spending (retail sales), gross domestic product, trust in the overall economy, and employment numbers. The United States GDP is extremely reliant on the consumer, as personal consumption accounts for over 70% of GDP. The basics of the stock market are similar, but slightly different. The fundamentals of the stock market are things such as: corporate profits, trust in the system, amount of uncertainty in the system, and simple supply and demand and the willingness of investors to take on some risks.

The bottom line is in the end you should invest based on how the fundamentals of the economy and the stock market will do. A certain event may change how the market reacts for a limited amount of time, but in the end the fundamentals will always be the train that drives the market and the economy either higher or lower.