The American stock market continues to rally leaving investors to ask how is that possible given $14 trillion of debt in the U.S. The answer really is pretty simple but one that most investors fail to understand.
The stock market is a pricing mechanism for company financial health and future earnings.
While it is true that the stock market cannot disconnect completely from the economy, it often does and that is what is occurring now.
There's a reason why so many individual investors have missed so much of the equity rally; they just don't realize that there is often a time separation between company earnings and long-term economic health.
The latest GDP numbers show that the US economy is growing at a lethargic 1 percent rate. I suppose it certainly is better than a recession or 2008 by any standards.
(Read more: Growth is slow, better days may be near)
Still, it's a pathetic economic growth advance.
And while the economy stumbles, companies continue to post reasonable, not disastrous earnings and CFOs in corporate America are becoming more optimistic about future corporate revenue growth. And when one understands that the economy is not directly correlated in immediate time with economic health, this is not a conflict.
But what is one to do when the market rallies to all-time highs (which in reality means it's finally breaking even after years)?
Is it time to take money off the table and head to the cave? Is it time to buy into the belief that the US economy is a disaster and therefore market disaster is likely?
(Read more: Steady Fed: Printingpresses to keep on rolling)
I say no. While we are advocates of being more conservative as markets rally, the perspective that it is prudent to run to cash at 0 percent interest with 3 percent inflation makes no sense to us. But if you buy into the philosophy that it is not time to head for the hills, you better have the right time horizon perspective.
Yep, time horizon still matters.
If you are a short-term investor your portfolio is going to be driven by news and headlines much of which you have no control over. The longer your time horizon, the better the chance you have a chance that fundamentals will play a greater role in your portfolio rather than if a Chinese Trade Minister says something that is misinterpreted by a translator.
Emerging markets are the perfect example of short-term panic. If the middle class in emerging markets doubles in the next 10 years, it's hard to imagine (despite the horrendous recent performance of emerging markets relative to the United States), that these markets will not provide investment returns over the long term.
(Read more: As the world turns, BRICs no longer a slam dunk)
Take a look 10 years ago at how bad emerging market performance was and how much it bounced back.
In fact, if you are skeptical about emerging market performance, look at how the housing market is bouncing back. In many communities multiple offers are the norm as houses go to market.
Look at how AIG is bouncing back.
Look at the banking sector in the United States that was once left for dead.
Remember when Citigroup was at $1 a share?
Given this perspective, even a hated stock like Apple can bounce back if given enough time (coupled with new products).
(Read more: Mediocre earnings cast doubt on second-half surge)
So keep in mind that economics and market performance do not move lockstep together.
And recognize that the longer you give your strategy chance to perform, assuming you have the right strategy in place, the better the chance you have of filtering out the noise that creates short-term disappointment.
And don't ignore the zombie economy but don't assume that this means that investment returns will also be zombie-like. That is simply not necessarily the case.
Michael Yoshikami is the CEO and founder of the investment committee of Destination Wealth Management.