Wall St. and Business Wednesdays: Stock Market Continues To Set Records by Jerri Stroud

The stock market is reacting a little like someone who goes to the dentist
thinking he's going to have a root canal but actually gets a small filling.

He leaves in a good mood, even if the experience wasn't pleasant.

Thus better-than-expected inflation and profit reports Tuesday propelled the
Dow Jones Industrial Average above 14,000 for the first time, though it settled
back to close at 13,971.5, a gain of 20.6 points for the day. Other indexes
were mixed.

So while the housing market may be faltering, gasoline prices are high and the
political climate is acrid, things could be worse, said D'Anne Hancock, an
associate professor of finance at the University of Missouri-St. Louis.

The market "likes good surprises, even if it's bad," she said with a laugh.

But some of the economic news Tuesday was genuinely good, including a drop of
0.2 percent in the Labor Department's producer price index, a measure of what
companies pay for goods and services. Forecasters had expected a gain of the
same magnitude.

Most analysts said that the Dow's latest record is less significant than the
strength it showed in attaining the new number. The market has moved up
steadily, with a minimum of setbacks.

A 14,000-point Dow "is anything but magical," said Al Goldman, chief market
strategist at A.G. Edwards & Sons Inc. "What means a lot is how the market had
the ability to get up to 14,000."

The keys are mood, money and momentum, he continued.

"The mood is still one of cautious optimism," Goldman said. "The world is awash
in money, and that money has been seeking investments in equities. And
momentum: The market has been showing better quality going up rather than
weakness going down."

"It's not about numbers, it's about expectations," said Alan Skrainka, chief
market strategist at Edward Jones, the brokerage firm based in Des Peres.
"Expectations were very low," so it took less of an upside to spur confidence
in the market.

"People focus on bad news," Skrainka added. "The market pays attention to all
the news, and right now the good news is outweighing the bad."

Investors, Skrainka said, need to focus on quality investments rather than
worry about the direction of the market.

Joe Terril, president of Des Peres-based money management firm Terril & Co.,
agrees that the market is flooded with money — mainly from foreign sources. The
dollar is weak, making U.S. stocks look cheap to investors from Canada, England
and Europe, he said.

"Like it or not, we're a global economy now," Terril said. "Most of the
multinational (companies) are doing 70 to 75 percent of their business outside
the U.S."

Foreign investors tend to buy the big companies, and that helps the Dow, which
is an average of 30 large industrial companies, Terril said.

The S&P 500, an index that also includes mostly large U.S. companies, hit a
record closing high on Friday, before falling slightly Monday and Tuesday.

Ken Crawford, a portfolio manager at Argent Capital Management LLC in Clayton,
said strong merger and acquisition activity also is playing a role in the
rising market. Large companies like Alcoa and Verizon are being talked about as
takeover targets.

"Being big doesn't mean that you can't be taken by a bigger or more aggressive
peer," Crawford said.

High commodity prices also boost the Dow because many of the companies are
involved in those markets, Crawford said.

The analysts said the market still has resilience, but it could flatten or
decline after reaching new highs.

"After the market achieves something like 13,000 or 14,000, you usually get a
short-term timeout," Goldman said.


Jerri Stroud can be contacted via e-mail at: jerristroud@post-dispatch.com

This article first appeared in The St. Louis Post-Dispatch

Wednesday, July 18, 2007