With more than 60 percent of the fourth-quarter earnings season completed, S&P 500 profits are up 10.4 percent compared with the year-ago quarter (pink bar). Unless the final leg of the earnings season proves a shocking flop, earnings will have posted 14 straight quarters of double-digit growth. That's more than three years of double-digit gains on top of double-digit gains! The five smaller bars at the very left of the graph are a reminder that a more important streak is still alive -- 19 quarters of profit growth whatever the size. The four gray bars to the right are future expectations as gauged by Wall Street analysts. It's not unusual at all for analysts to underestimate future earnings; in fact that's been the exact pattern through the whole expansion.

But one streak has come to an end. After 10 straight quarters of lagging growth, stock prices out gained profits. As shown in the graph above, the S&P 500 was up a sharp 13.6 percent in the fourth quarter (red bar), 3.2 percentage points above profit growth. The last time shares exceeded profits was back in the first quarter of 2004.

Why now?
A closer look at the comparisons does raise the question whether gains in the stock market, which also include the S&P's 2.1 percent increase in January, are coming at the end of the profit cycle. The fourth quarter's 10.4 percent growth in profits is in fact the lowest of the streak, while the 13.6 percent gain for stocks is the highest in 11 quarters. Are stocks rising at the wrong time?

Profits are strong but not accelerating. Though economic strength is solid, there's been plenty of soft data out of the housing and auto markets, and the ISM manufacturing report, widely watched in the bond market as a leading survey of economic activity, has been struggling for three months at break-even levels.

But job growth has been solid and consumer spending is arguably very strong. Consumers aren't interested in their savings, and home appreciation is a thing of the past right now. More and more the stock market may be where Americans turn.

The above graph shows when the love was at its height. The mountain on the left side of the graph, beginning in 1997, is five years of separation between stock growth and profit growth (profits here are total corporate profits posted in the national account). But this is a memory and a bad one at that. The news in the graph is on the right side, which in light green shows the current ascent of profit growth. The graph below more clearly illustrates the wild imbalance between perceptions and reality at the millennium, and it's also a reminder that many important stock indexes, including the S&P 500, have yet to match their Y2K records.

Day-to-day record closes for the Dow industrials, however marginal and tedious to report, do in fact reverberate with the public. Just yesterday a nice gentleman (school teacher actually) told me, "Stocks are at records!" New records for other indexes may spark further talk, but the regrettable example of the Nasdaq's monumental record (5,048 in March 2000 vs. Friday's 2,475 close) is certain to balance spirits.