Transcripts

"The Economy and the Markets at Mid-Year"-Stocks Half Year Recap

PAUL KANGAS: Detroit's troubles contributed to a bad winter on Wall Street. But by spring, investors began to look forward to better times ahead for the economy. As Suzanne Pratt reports, that led stock prices to get back on track.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The ultimate race to nowhere -- that's what some stock market pros call the action in the year's first half. That's because the Dow Jones Industrial Average ended the six months close to where it began. But a look at a Dow chart shows it was really a wild ride. First, there was a steep drop then a dramatic comeback as the index moved in a 2,500 point range. RBC Capital's Marc Harris says the price swings were unprecedented.

MARC HARRIS, CO-HEAD, GLOBAL RESEARCH, RBC CAPITAL MKTS.: There's no doubt it's extreme. I mean, you have 25 percent moves down and then 35 percent moves up. There's no mistake, for the U.S. equities market that's dramatic.

PRATT: While the Dow and S&P 500 were essentially unchanged in the first six months, the NASDAQ was up significantly. After the Dow reached 9,000 in early January, investors became consumed by extreme self-doubt. Worries about the solvency of banks led the market crash to resume in February and March. Not even a new president could keep stocks from going into a tailspin. By March 9, the Dow had fallen to 6,547, its lowest level in 12 years. Wall Street strategist Sam Stovall says investors were suffering from a serious lack of clarity on the economy.

SAM STOVALL, CHIEF INVESTMENT STRATEGIST, STANDARD & POORS: Investors had donned their 3D glasses trying to ascertain, the depth, the duration and the diffusion of this global recession, I think they were also totally concerned about whether the U.S. government would be nationalizing the U.S. banks.

PRATT: But just as quickly as stocks entered the abyss, they shot right back out. From mid-March through mid-June, the blue chip index surged 34 percent. Experts say the game changer was policy measures from the White House aimed at restoring confidence. Investors began to think maybe the new administration was getting its act together. Strategist Craig Peckham also credits positive economic signs or green shoots that appeared in the early spring.

CRAIG PECKHAM, EQUITY STRATEGIST, JEFFERIES & CO.: What you saw happen from March to today was just a radical change in risk perceptions in the marketplace. It was born out of what was happening in fixed income markets as credit investors started to come back into bonds and select corporate credits. That spilled over into the equity marketplace.

PRATT: Experts say the market remains in a fragile state with investors still skeptical about the future. The good news is there's plenty of cash on the sidelines which given incentive could come pouring back into stocks. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.