In the early days post-inauguration, will financials keep doing well? Will we continue to see the kind of outperformance that we’ve witnessed recently?

Today, America carried out the peaceful transition of power that is at the heart of our democracy—except that we don’t actually have a democracy but a republic. In a democracy, the people make the decisions. In a republic, they elect representatives who make the decisions for them. This is a subtle but important difference, and one that represents a very deliberate decision by the founders, who distrusted popular sentiment.

In yesterday’s post, I discussed how corporate earnings will likely continue to improve, which should be good for the stock market on a fundamental basis. That’s not the whole story, however.

The key driver of the stock market, over the long term, is earnings. In the short term as well, earnings can be the primary driver of market performance. So, each quarter, it makes sense to review whether earnings are doing well or poorly, and why.

After a strong start, 2017 slowed down considerably in terms of economic data. Last week’s news, which centered on the consumer, largely disappointed. Although it’s too early to get very concerned, the numbers suggest that higher confidence levels aren’t yet translating into actual growth.

Just as I do with the economy, I review the market each month for warning signs of trouble in the near future.

The news this month continues to be good, with more positive data almost across the board. This is the second month of reversal against the downtrend that developed in 2016, which suggests a real change of course. Although we need more data to be fully confident, the consistency of the positive reversal across multiple data sets and the magnitude of the positive surprises are very encouraging.

Rereading some of my recent posts, it occurred to me that I’ve talked quite a bit about “confidence” (and the improvements thereof) without actually defining what I mean by it. Much of social science, and economics, is based on hand-waving, so when you have actual data, it makes sense to employ it.

Recently, several readers have written in questioning the current optimism about the economy. Is it sustainable, and is it realistic to expect faster growth?

2016 ended with a bang, as the Conference Board’s consumer confidence survey once again surprised to the upside. Coming in at 113.7 for December—up from 107.1 and beating expectations of 109—this is the highest level since 2001, suggesting that consumers are increasingly optimistic, despite weak personal income and expense growth.