Dow flirts with record high

Amy Scott Sep 27, 2006

KAI RYSSDAL: Wall Street didn’t bat an eye over Amaranth’s misfortunes. Investors were firmly focused on something else. The chance the Dow Industrials would hit a record close this afternoon. I’ll spoil the surprise and tell you up front that it didn’t. But we got our own Amy Scott on the line from New York to explain how we got so close and why it matters. If it does. Hi Amy.

AMY SCOTT: Hello, Kai.

RYSSDAL: So, it’s 30 lousy stocks, the Dow Industrials. Why did everybody get so excited?

SCOTT: Well, it’s partly which stocks these are. I was talking to Jim Paulsen, who’s a market strategist out in San Francisco. A lot of people, when they think about the stock market, they think about the Dow. So, Paulsen was saying, you know, sure, it’s just a number. It doesn’t really mean that much in the scheme of things. But, symbolically, people would really like to see that record broken.

JAMES PAULSEN: It challenges investors that have been sitting on the sidelines all decade long, since the dot-com collapse, and starts to have them question, “Am I missing out? Is it maybe time to get out of some of these 5 percent money market funds and maybe waddle back in a little bit to the stock market.”

SCOTT: Now, it’s important to note that the S&P 500 and the Nasdaq are still far from their closing records, though the S&P did hit a 5 1/2-year high at one point today. The Nasdaq is still more than 50 percent lower than its record in 2000. But if you take out the tech stocks, which are really what drove those meteoric highs in the last decade, those indices aren’t doing so shabby, either.

RYSSDAL: Well, let’s talk about that high during the boom for a minute. I mean, the economy now is so different than it was back then. There’s so much other stuff going on, some of which we learned about today. How does that all factor in?

SCOTT: Back then the companies that were driving the growth were largely those new-economy, high-tech companies. And many of them weren’t even making a profit. Compare that to today; we’ve had several years now of back-to-back growth in corporate profits and the economy is in what analysts like to call sort of a Goldilocks mode. It’s slowing down enough to keep the Fed from raising interest rates but not enough yet to worry about a recession. Gas prices have come down. Inflation reports have been decent. And then we had this surprise housing number out today. New home sales rose last month by more than 4 percent. So, yeah, this is nothing like the irrational exuberance that drove the record last time around.

RYSSDAL: We get all excited about this high, but seems to me, Amy, you know, once you get up here there’s really nowhere to go but down, right?

SCOTT: Yeah, right. Well, for whatever reason, the market always seems to struggle around milestones. The last time the Dow came within spitting distance of this record back in May, it promptly dropped more than 500 points in less than two weeks. And, indeed, today the morning rally sort of petered out after a Federal Reserve official warned that the risk of inflation is still out there and oil prices were rebounding. So, it’s hard to say whether we’ll see this record broken anytime soon.

RYSSDAL: Alright, we shall see what tomorrow brings. Amy Scott for us in New York. Thanks, Amy.

SCOTT: Thanks a lot.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.