At a recent dinner with old pals, the conversation migrated from cars, sports, food, and family to the economy and the unbelievable performance of the stock market.

Everyone said that in their respective professions (a manufacturing sales manager, an insurance adjuster, a foodservice executive, and a bank manager) business conditions were flat.

I’ve heard this from many people. Countless businesses are holding steady, but despite profound efforts, they can’t generate meaningful top-line growth.

Yet, the stock market just hit an all-time record high on modest first-quarter earnings results.

Quite obviously, this stock market is overbought.

Wall Street and institutional investors are in the business of betting on the future using someone else’s money.

Corporate earnings over the last several quarters have held up. But the earnings have mostly been squeezed out of worker productivity and cost controls.

Blue-chip balance sheets continue to grow stronger, and the lack of certainty in the global marketplace has dampened the willingness of corporations to make new investments.

The result is continued growth in quarterly dividends and share buybacks; and this is one of the many reasons why institutional investors have been buying this stock market—there is nowhere else to go.

I think it is still worth keeping a sharp eye on the crucial movements in the Dow Jones Transportation Average. It is old-school, but I believe that many component companies do provide a decent reflection of economic activity in the U.S.—at least from a corporate perspective. (Read “BlackRock Takes In Billions for Equities: A Signal the Stock Market Is Near a Top?”)

What I learned from many large-cap earnings reports was that sales and prices have somewhat improved domestically.

However, the international contribution combined with a stronger U.S. dollar provided weakness. The result: little to no business growth.

While balance sheets are solid for blue chips, there’s no way the stock market can maintain its recent pace without genuine business growth.

Institutional investors have now placed their bets on the stock market. The gamble is on second-quarter earnings growth, and the stock market must deliver.

From what I read, first-quarter earnings outlooks from many corporations expect business conditions to improve in the bottom half of the year. This is typical and is no surprise.

The manufacturing sales manager said that at his company (which makes highly specialized tools used by other manufacturers) business conditions were better in the first quarter of 2012 than the most recent quarter.

Loads of caution continues to be appropriate. Stock market investors in the first quarter opened their wallets (just slightly) and placed a bet.

The stock market is overbought until second-quarter earnings season.