The reason why the stock market is rising at the same time with unemployment is because Multinational Corporations revenues are comprised of income outside the U.S.

-quote-

"Daniel Gross points out that part of the reason that the American stock markets are going up even though unemployment is rising and the real economy suffering is because multinational corporations headquartered in the U.S. are experiencing strong sales abroad:

The Dow, the S&P 500, and the NASDAQ are primarily indices of large U.S.-based companies, not main street businesses: more Davos than Chamber of Commerce. These increasingly cosmopolitan firms have been busy globalizing and expanding their operations overseas. In 2006, according to Standard & Poor's, 238 members of the S&P 500 broke out revenues between U.S. and non-U.S. sales. These companies notched about 43.6 percent of sales outside the United States. For large companies that had already saturated the U.S. market, the home market was something of an afterthought. In the second quarter of 2007, 66 percent of Coca-Cola's beverage business came from outside North America."

-end of quote-

In uncertain times companies try to cut costs as aggressively as they can, among other things laying off workers. This increases unemployment, and at the same time increases those companies' profits (or reduces their losses). The positive financial results for these companies tend to push stock prices up.

In addition, as the economy gradually improves, stocks recover much of the ground they lost when the market crashed, but companies are reluctant to rehire employees who were let go until economic activity is such that they have to hire workers or lose business. Thus stock prices recover at the same time that unemployment remains high or even continues to climb (after all there are more people entering the work force as people graduate from high schools and colleges, while fewer people believe they can retire at this time).

From what I have read the stock market reacts ahead of the economy.

Theoretically that means that the economy should be picking up in a few months and the unemployment rate should start going down.

Another theory is that the international markets that are a part of the stock market and are headquartered in the United States are experiencing strong sales internationally.

I'm hoping that it is the former. ;-)

Cutting costs, as previously mentioned, does make companies more lean, and demonstrates that they need less on the books.

Another thing to consider is that the market's strength demonstrates the potential to do better, and provide a return to investors money. If companies are considered to be healthy, and look like they will remain that way, it's enough motivation to put money in these companies. Things can't get much worse, and the worse it gets the more it's true. When things can only go up, then it's time to buy.