MELISSA BLOCK, Host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.
ROBERT SIEGEL, Host:
Unidentified Man: Bell rings. This is the real story. Dow 13,000 in the books, first time ever, 13,088. Almost every second, the stock market is getting it done today as the bell rings...
(SOUNDBITE OF RINGING BELL)
SIEGEL: Joining us to talk about what if anything this tells us about the equity markets and the U.S. economy is Sam Stovall. He's the chief investment strategist for Standard & Poor's Equity Research. Welcome to the program once again.
SAM STOVALL: Happy to be here, Robert.
SIEGEL: Big round numbers like 13,000 to get people's attention. Does that usually encourage people to buy more stocks or to sell stocks?
STOVALL: Actually, it encourages investors to buy more stocks. It's funny but when you see appliances go on sale, consumers tend to rush out and buy them. However, when you see stocks start to become more expensive, that's when investors tend to go out and buy them.
SIEGEL: When we lose all common sense when it comes to buying investments is what you're saying?
STOVALL: Well, it certainly reminds us that most investors' actions are driven either by fear or greed.
SIEGEL: The Dow Jones Industrial Average has 30 stocks in it. Are there other averages that have hundreds of stocks that were always said to be better indicators of the stock markets? Is it the case that as the Dow goes so go all the averages?
STOVALL: In most cases, so go the large company U.S.-based averages. The Dow 30 has actually done an exceptional job of tracking the economic growth as well as the overall large company stock market performance since it was established in the mid-1890s. I think, certainly, however, because of the lack of exposure to technology and telecom stocks in the late 1990s as well as the very large international exposure has helped the Dow recoup its losses as much more quickly than the S&P or the NASDAQ.
SIEGEL: The stock market is often said to be a leading indicator of the economy because people will buy a company's shares assuming that the company's going to be making big profits. But the economy actually hasn't looked so hot, and you got a housing slump. We got high-energy prices. Does this 13,000 Dow mean good news for most Americans or just for investors?
STOVALL: Well, I think it's certainly now it's good news for investors and what it portends is better news for Main Street that basically the stock market, as you said, tends to anticipate events by about six months. And I think many economists, analysts, investors were worried that the housing situation could continue not only in 2007 but into 2008. That we could see a decline in corporate profits that maybe even a soft landing could become a hard landing or even recession as forecasted by Alan Greenspan. So possibly the stock market is indicating that no, maybe the worse is behind us and that sluggish times or even better times lay ahead.
SIEGEL: To add these last thousand points, to go from 12,000 to 13,000, it took a few months. It took several years to go from 11,000 to 12,000. What does that tell you about the speed of economic growth?
STOVALL: Well, I think it also indicates that the recovery was relatively quick. It took place in a matter of seven years, whereas, the Dow 1,000 flirted with that level for about 16 years. It also indicates that internationally we are now much more of a global economy than we were many, many decades ago. At Standard & Poor's we estimate that as much as 45 to 48 percent of the revenues of companies in the S&P come from overseas operations. So it's not just a domestic index anymore.
SIEGEL: We should note in that case that for people who are investing euros around the world, this 13,000 Dow isn't nearly as healthy as it looks because the dollar isn't worth that much anymore.
STOVALL: Exactly. U.S. investors are benefiting because with the weaker dollar that implies that more units of products or whatever could be sold overseas and whatever international investments they have would benefit from the favorable currency tailwinds when they reinvest those dollars here in the U.S. So it benefits U.S. investors and it benefits foreign travelers or visitors to the U.S.
SIEGEL: Mr. Stovall, thank you very much for talking with us once again.
STOVALL: Thank you, Robert.
SIEGEL: That's Sam Stovall, who is chief investment strategist for Standard & Poor's Equity Research. He spoke to us from New York City.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.