The Marketplace Report: Shares Rise with Interest Normally, stock market share prices fall when interest rates rise, but that's the not the trend lately. Alex Chadwick talks to John Dimsdale of Marketplace about why the Dow Jones industrial average is approaching levels not seen in six years, even as interest rates rise.
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The Marketplace Report: Shares Rise with Interest

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The Marketplace Report: Shares Rise with Interest

The Marketplace Report: Shares Rise with Interest

The Marketplace Report: Shares Rise with Interest

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Normally, stock market share prices fall when interest rates rise, but that's the not the trend lately. Alex Chadwick talks to John Dimsdale of Marketplace about why the Dow Jones industrial average is approaching levels not seen in six years, even as interest rates rise.

ALEX CHADWICK, host:

Back now with DAY TO DAY. If you're not an aware investor, this may come as news. It's big news. The Dow yesterday closed at its highest point since May of 2001. The index now is just a little more than 400 points shy of its all-time record in January 2000. Joining us is John Dimsdale at Marketplace's Washington Bureau. John, what's happening?

Mr. JOHN DIMSDALE (Marketplace): Well, there's a lot to like in this economy, Alex. Unemployment is low; inflation is tame; growth is healthy; profits are excellent; people are beginning to use that terms goldilocks economy again, where the growth is not too hot, not too cold, and companies have been making good money for some time now. Diane Swonk, the Chief Economist with Mesirow Financial in Chicago, says investors are finally convinced that these profits are for real.

Ms. DIANE SWONK (Chief Economist, Mesirow Financial in Chicago): Many people looking at the quality of profits, after years of being deceived by profit performance, are now convinced that not only are profits good, but they're as good as their word. The quality of profits today are judged to be the best in 30 years; in fact, companies no longer are monkeying around to try to inflate profits like they did in the late 1990s. We're actually seeing these are solid profits.

CHADWICK: Well, okay, but what about an expensive war that's going on; ongoing worries in the Middle East; high oil prices, rising interest rates; don't people, why aren't they worried about this?

Mr. DIMSDALE: You're right on all counts, but you know, while the interest rates have been going up, there are signs the Fed's just about finished raising rates, plus the long bull run in housing seems to be over, and investors are pulling some of their money out of real estate, and therefore putting them into stocks. And as for defying really expensive oil and gasoline, I have to go to the experts on this. David Weis is the Chief Economist with Standard and Poors.

Mr. DAVIE WEIS (Chief Economist, Standard and Poors): It surprised us that the market has totally ignored oil prices. You know, usually you expect that when oil prices go up like this, there's some pressure on consumers, but we responded to the price of oil in, you know, a very robust manner by just continuing to live beyond our means.

CHADWICK: Well, John, how long do people think this stock market rally's going to last?

Mr. DIMSDALE: Many analysts see it as a broad-based increase that's going to last for the rest of the year; in fact, stock markets around the world are doing pretty well. If anything, the U.S. markets are a little late to the global party. Some point to the similarities to the mid-1990s. When the Feds stopped raising interest rates there was a pop in the stock market. The fundamentals in the U.S. economy are so solid right now, the only thing that could derail a rising market would be some sort of external shock, and if there's one of those, the Fed now has a cushion, meaning they could lower some interest rates to help the economy weather a surprise.

Coming up this evening on Marketplace, we're going to find out why kosher food is all the rage in China right now.

CHADWICK: Thank you, John Dimsdale of Public Radio's daily business show, Marketplace, produced by American Public Media.

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