The above chart has a lot in common with the chart featured in last week's post "The economy keeps on trucking." Both show that the progress of equity prices is related to growth of the physical economy. Last week's chart showed how equity prices are ultimately grounded in a measure of total truck tonnage; this week's chart shows how equity prices track factory orders. Both charts suggested that equity prices "overshot" the progress of the physical economy around 2000, and both suggest that equity prices are now reasonable (or "fair") given the progress of the physical economy.
Nondefense factory orders are now at a new all-time high, having risen 5.1% in the year ending November 2013. Total factory orders are up almost 5% over the same period, and the gain in November was about as expected (+1.8% vs. +1.7%).
This is still the weakest recovery ever, but it is nevertheless a recovery, and more and more measures (e.g., truck tonnage, rail traffic, factory orders) of the size and strength of the economy continue to improve. So it is not surprising at all that equity prices should also be breaking new high ground.