Transcripts

The S&P 500's Record Run Fails To Reach The Finish Line

SUSIE GHARIB: The S&P 500 made another run at a record close, only to pull back in the afternoon. The big debate on Wall Street now is whether this market rally will encourage investors to take profits or attract new money. Erika Miller has more on the outlook for the S&P 500.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Wall Street watched and waited, eager to see if the S&P 500 would set a new record today. It didn't, but most analysts think it will soon. The index has been propelled by strong first quarter earnings, corporate mergers, and share buybacks. The last time the S&P was at these levels in March of 2000, it proceeded to lose nearly half of its value in the next three years. Many market technicians, including Ronald Daino, are not expecting a steep correction this time, given the broad-based nature of the rally.

RONALD DAINO, TECHNICAL ANALYST, LOUISE YAMADA TECHNICAL RESEARCH ADVISORS: The bigger picture -- based on weekly data and monthly data for the S&P -- remains quite strong and we think that, based on that data, that the S&P can not only make a new high, but can continue to extend its recent gains.

MILLER: Others are optimistic about the market based on fundamentals. They say corporate earnings are healthy and inflation fears are receding. Alan Skrainka of Edward Jones also points out that market valuations are attractive.

ALAN SKRAINKA, CHIEF INVESTMENT STRATEGIST, EDWARD JONES: Seven years ago, the market was hitting new highs. With hindsight, everybody knew that was a time to get out. But the P/E on the market was about 31; today, it's about 16. So, the market's at a high, but there's still good value in the market because earnings have been rising faster than stock prices.

MILLER: Skrainka also expects the Federal Reserve will eventually start cutting interest rates, which could encourage investors to buy stocks. That is not to say the market doesn't face risks, including inflation pressures.

SKRAINKA: If we start to see unit labor costs moving up in a sustained way -- because labor is 70 percent of the cost of doing business in a service economy -- then I think the Fed will have to put on the brakes. That will be my biggest concern.

MILLER: History is on the bull's side. According Standard & Poor's, since 1942, the S&P 500 has gained an average of 5 percent six months after setting a new record. Even more encouraging over the past 65 years has been the market's stamina. The S&P study showed that, on average, the market peaked more than three years after setting a new record high. Erika Miller, NIGHTLY BUSINESS REPORT, New York.