The Journal on C1 says the market may be “setting itself up for failure” by betting too high on earnings later this year. It says expectations for the fourth quarter would make it the most profitable in history and dryly notes that:

Brian Belski, U.S. sector strategist at Merrill Lynch, says Wall Street stock analysts have a track record of being overly bullish about earnings rebounds amid economic downturns (and too bearish when earnings fall.)

Following the periods of declining earnings in 1991 and 2001, results four quarters after the trough of the downturn came in 50% below what had been expected when the economy was bottoming out, Mr. Belski notes.

Its Ahead of the Tape column, also on C1, sounds a similarly downbeat note. It calls the stock market’s performance of late into question, noting that the “economy’s performance hardly seems to justify such ebullience.”

You can’t eat the core index

The Tribune looks at the inflation game and how the government underestimates it by low-balling the impact of food and energy prices. Its headline neatly summarizes the cognitive dissonance: “Food, fuel costs climb, and key inflation measure drops.”

Here’s the Quote of the Day:

“It is reassuring to have the core index tame, but you can’t eat on the core index. You can’t drive on the core index,” said Bill Hummer, chief economist at Wayne Hummer Investments in Chicago. “You can’t ignore what’s going on in food and energy.”

The paper quotes an analyst who says inflation is running at an annual rate of more like 10 percent, rather than the 4 percent the government says, primarily because of increases in “consumer essentials.” Why would they do that? The Trib doesn’t attempt to answer, but this may help.

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