Fallout: The Financial Crisis

Can the economy support market rally?

Bob Moon May 18, 2009
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Fallout: The Financial Crisis

Can the economy support market rally?

Bob Moon May 18, 2009
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TEXT OF STORY

Kai Ryssdal: On the theory that context is important, especially with stock-market stories, let me offer these two numbers as we get going today. When the Dow hit what now looks like it might have been the bottom of this bear market back in March, the blue chips were off more than 50 percent from their all-time high. That’s reference point number one. Reference point number two is this: Including the close today, the Dow’s up almost 30 percent from that low.

All right, so that brings you up to speed on where we’ve been. As for where things might be going, and why, here’s our senior business correspondent Bob Moon.


BOB MOON: Remain seated and keep your seat belts fastened. Investment adviser Gary Shilling isn’t convinced Wall Street’s roller coaster ride is approaching an end. He points out in most of the recessions since World War II, the economies had what he calls “flights of fancy.”

GARY SHILLING: Stocks tend to follow the same pattern. So to say it’s bottomed out, yes, for this particular down leg, but that does not say — as a matter of fact, the odds are against this having been the final bottom.

Shilling says the economic fundamentals don’t support a further rally. There’s still a huge backlog of housing, and a pile of mortgage and other looming credit defaults, so it’s too quick to sound an “all clear.”

SHILLING: One thing that tells you we’re probably not at a bottom is this tremendous zeal to seize on any improvement in the economy. I mean, until people really give up, you’re probably not going to see a good bottom in stocks.

Other market-watchers aren’t so pessimistic. At Johnson-Illington Advisors, Hugh Johnson concedes investors may have gotten a little ahead of themselves, but he’s satisfied that they’re looking ahead to where we’re going, not where we’ve been.

HUGH JOHNSON: For sure this economy’s doing very poorly now. You look at employment or anything. But if you look at the those leading indicators for the economy, they tell us that things are going to get better in the third quarter, and that’s what Wall Street focuses on.

As for all the bad news, Jeffries’ chief market analyst Art Hogan says it’s better than it was three months ago. He takes that as a sign the economy has bottomed out. But he also concedes investors will need something more concrete than that if the rally is to last.

ART HOGAN: At some point in time, we’re going to see actually good news.

In the meantime, buckle up.

In Los Angeles, I’m Bob Moon for Marketplace.

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