Stocks Set To End 2010 On An Upbeat Note
RENEE MONTAGNE, host:
This is MORNING EDITION from NPR News. Im Renee Montagne.
Despite some ups and downs, the stock market had a good year in 2010. To find out why and what it portends for the economy, we turn to Dave Wessel now. He's economics editor of The Wall Street Journal.
Mr. DAVID WESSEL (Economics Editor, The Wall Street Journal): Good morning, Renee.
MONTAGNE: David, how good was this year for stocks?
Mr. WESSEL: Well, it was pretty good. The Dow Jones Industrial Average was up nearly 11 percent in 2010, on top of a 15 percent rise in 2009. It's basically put the stock market, more than two years after the disaster of Lehman Brothers in the fall of 2008, its back to where it was before we had that calamity.
We have this great chart in The Wall Street Journal today, that shows that nearly all the stocks in the S&P 500 were down in 2008, 425 of them were up in 2009, 392 were up this year. And the same is true in most of the foreign stock markets - Germany, Canada, Britain.
It seems that investors think that, well, corporate profits are doing pretty well and investors have decided that the worst is behind us - that the risk of a double dip recession has faded. Capital gains taxes are not going to go up in the U.S. next year, as some had feared. And they seem to think the economy will get better - maybe slowly - but will get better from here.
MONTAGNE: Which sounds like good times are coming, but how good a predictor is the stock market for the rest of the economy?
Mr. WESSEL: Not great. The late economist, Paul Samuelson, once joked that the stock market predicted nine out of the last five recessions. If there's some bad news on the economy, some surprise in oil markets or tension in the Middle East, or in North Korea or something, the stock market could dive again.
But it does suggest some optimism, that, about the durability of the economic recovery. And there's one thing that really does matter: higher stock prices mean that people have more money - at least the ones who own stocks.
The value of the stock market, of the whole stock market, is up about $2 trillion over the year. Now, even though most people's assets are in houses in America - and house prices are not going up - still, there's more money in the stock market than there is in the housing market. And so, the more money people have and the better businessmen feel about the stock market, the more likely they are to spend.
MONTAGNE: Give us a little scorecard. Which industries and stocks did best this year, and which ones lagged?
Mr. WESSEL: Well, as I said, most did better. Commodity prices are up a lot and that help the shares of companies that produce them, or help produce them. Caterpillar had a great year, the equipment maker. DuPont, which makes chemicals and sells agricultural seeds, was up roughly 50 percent. In general, smaller companies did better than big ones.
As consumers began to spend again, companies that sell to them had a good year in the stock market: Ford, Abercrombie & Fitch, Amazon, Apple was up 50 percent, Netflix was up 227 percent.
And one of the biggest winners of all, ironically, was AIG - the insurance company that was bailed out by the government - its shares nearly doubled in 2010, although they're still not worth anything like they were before the crisis.
On the down side, some of the big tech companies, Hewlett Packard and Cisco had lousy years. And so did a number of companies that got in trouble with the government, shares of for-profit trade schools, for instance. And Johnson and Johnson, the medical products maker, they had some regulatory issues and they were down for the year, as well.
MONTAGNE: But very briefly, David, unemployment is close to 10 percent still. I mean back to that question of the economy and the stock market. How can companies prosper when their customers aren't?
Mr. WESSEL: Thats a good question. The first thing is they can't for long. The second is that those people who have money are spending. The third thing is that companies are getting a lot of productivity out of their existing workers, which means they're making more profit out of each worker.
And finally, nearly half the revenue of the companies in the S&P 500, come not from selling to Americans but to selling from abroad. And a number of foreign economies, particularly in Asia, are doing quite well.
MONTAGNE: David, thanks very much and a happy New Year to you.
Mr. WESSEL: You're welcome, Renee, and happy New Year to you.
MONTAGNE: David Wessel is economics editor of The Wall Street Journal.
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