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May 28, 2007

Why's the stock market rising?

Gas prices are headed up. The national unemployment rate rose last month. Mortgage bankruptcies have skyrocketed. And yet the stock market is setting new records. Is Wall Street disconnected from Main Street? Some analysts say so, but not N.C. State University economist Mike Walden.

"I think actually there's some rationality behind what's happening in the stock market," says Dr. Walden, a North Carolina Cooperative Extension economist. "The stock market ... considers two key factors: economic growth and interest rates.

"Now in terms of economic growth, what the stock market actually likes is not gangbuster economic growth," explains Dr. Walden. "They like moderation. They like economic growth, but going at a modest pace.

"In terms of interest rates, they like lower interest rates," he adds.

"Now if you look at the economic landscape now we see really we've got both of those factors. We do have economic growth, but it is actually slower than it was last year. But it is not slow enough to be in a recession. So it's kind of in that Goldilocks standard that the stock market likes.

"Plus the interest rate situation is actually pretty good," Walden says. "Interest rates are certainly higher than they were two years ago, but they are a lot lower than they were over this decade.

So I think right now investors are looking at the economy and saying 'Hey, it's not too hot. It's not too cold. It's just about right," he concludes. "And I think this is the main reason why we've seen these new records set."

Posted by deeshore at May 28, 2007 08:00 AM