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A tamer bull

Sluggish real estate and commodities bring a Dow rebound


A tamer bull
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For those with memories of the roaring '90s, the recent surge in the Dow Jones Industrial Average had an unusual feel to it. Very little champagne flowed and few analysts boasted of a "new era" in investing this time around, even as the Dow hit new highs throughout the first two weeks of October. For the year through Oct. 11, the Dow was up 10.6 percent.

Few wanted to overstate the importance of the Dow's newfound strength. The Dow tracks only 30 marquee companies, and broader stock market gauges-including the S&P 500 and the Wilshire 5000-remained below their peaks. Tech stocks, meanwhile, have been treading water, with the Nasdaq Composite Index trading at just a little under half of its March 2000 level. Even the Dow's new peak is only technically a record high: Adjusting for inflation, the Dow is well below where it stood on Jan. 14, 2000.

But if the stock market wasn't bursting through the ceiling, it wasn't languishing on the floor anymore, either. A softening housing market, sluggish oil and gold prices, and the Federal Reserve's decision to halt interest rate hikes have together made the stock market suddenly more attractive to investors. "Money that a year ago would have been invested in Miami condos and six months ago would have been invested in crude oil futures is now looking for a home," investment analyst John Skjervem told the Associated Press.

Bullish analysts argue that this upswing in stock prices is different from the 2000 bubble. At its foundation, they say, is something a bit more solid than the speculative fever of the late '90s-namely higher corporate profits. "Stock prices today are a clear reflection of the economy," economist Mark Zandi told PBS. "They're much more consistent with what actually is happening. So the records today are real; they're not fake."

Plenty of bears remained skeptical of the stock market's rise, predicting a rebound in gold prices and noting the long-term uncertainty about how stocks will weather the upcoming retirement of the baby boom generation. But optimism-a relatively sober optimism -ruled the day on Wall Street.

Balance Sheet

ECONOMICS: American Edmund S. Phelps was awarded the Nobel Prize for economics last week for his work in challenging the conventional wisdom about the relationship between unemployment and inflation-known as the Phillips Curve. "I thought for a time I would get [the Nobel Prize] in my 60s," said Phelps, at 73 an economics professor at Columbia University, "then I thought I would get it in my 70s and, more recently, I've been thinking that I would get it in my 80s."

PENSIONS: Hershey is the latest big company to restructure its pension plan. The Pennsylvania-based chocolate maker announced on Oct. 10 that employees hired after Jan. 1, 2007, will not participate in Hershey's defined-benefit pension plan; instead they will receive increased 401(k) contributions. "We redesigned our retirement plan to ensure that we can invest in our people and our brands, the essential elements of our success," said company spokesman Kirk Saville.

BUDGET: The U.S federal budget deficit declined to $248 billion in fiscal 2006, the Treasury Department reports. Spending increased briskly, but revenues rose even faster, leading to a $71 billion drop in the deficit, which stood at $319 billion in 2005. The Bush administration last summer predicted a $296 billion shortfall for 2006. -T.L.


Timothy Lamer

Tim is executive editor of WORLD Commentary. He previously worked for the Media Research Center in Alexandria, Va. His work has also appeared in The Wall Street Journal, The Washington Post, and The Weekly Standard.

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