The Dow Jones continued to climb past 13,000 Thursday, despite rising gas prices and a struggling U.S. housing market. Two economic analysts detail the recent fluctuations in the American economy.
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Now, trying to make sense of the ups and downs of the economy. On Wall Street, markets rallied again today. The Dow Jones Industrial Average hit another record today, as it continued its climb past the 13,000 mark for the first time this week. The S&P 500 is nearing its record, as well.
But is it a good barometer of the larger economic picture in the U.S.? The housing market looks weak; new home sales rose slightly last month, but less than expected. Meanwhile, in March, existing home sales took their biggest tumble in years. Also hitting the pocketbook: Gasoline prices are rising again, now averaging $2.91 a gallon.
Joining us now for some analysis are Sam Stovall, chief investment strategist at Standard and Poor's, and Boyce Watkins, assistant professor of finance at the Whitman School of Management at Syracuse University.
And, Mr. Stovall, what new highs, both in the broad market measures, like the S&P, and the more popular ones, like the Dow, reflect, if anything, about the state of the wider economy?
SAM STOVALL, Standard and Poor's: I think basically, Ray, it says that there is reason to be confident, at least, that possibly the worst is behind us for all those factors that you had mentioned, that we're probably in the lowest quarter for the housing situation. Possibly we have a contained subprime environment that, while oil prices and gasoline prices are fairly high, there's a lack of surprise element involved in this.
Also, that corporate earnings, even though they are decelerating, basically Wall Street is saying that we can look beyond this valley and look into 2008, in which we do see an acceleration in economic growth, as well as corporate profits.
Professor Watkins, why are the market indices surging when there are signs of weakness in other parts of the economy?
BOYCE WATKINS, Syracuse University:
Well, the word for today really is expectations. If you ask a guy why he's happy that his daughter got a C-plus on a report card, he'll say, "I was ecstatic, because I thought she was going to get a D."
The fact is that two-thirds of the companies in the Dow Jones Industrial Average met or exceeded their earnings expectations for this quarter, which makes a difference. The market's driven by expectations.
The second word for today is international. The average Dow Jones Industrial Average company gets 41 percent of its sales from overseas markets. And if you add that to the fact that the dollar is declining in value, which opens up those markets further for American products, you're going to see the surge that you've seen in the market recently.