Is the Worst Over for Wall Street?

ALEX CHADWICK, host:

I'm Alex Chadwick. Coming up, the great-granddaughter of the greatest oil baron ever says Exxon needs to go more green, and we will talk with her.

BRAND: Exxon reported big profits yesterday, but Wall Street wanted even more, and so Exxon's stock slipped a little. In general though, stocks are climbing. Yesterday the Dow closed above 13,000, the first time it has done so since January. You might think this is a little strange considering that the over-all economy is not doing so well. Well, here to explain this seeming contradiction is William Knapp. He's an investment strategist for a division of New York Life. And Mr. Knapp, the stock market is up more than 10 percent, what's driving this increase?

Mr. WILLIAM KNAPP (Investment Strategist, New York Life): Well, it's optimism with respect to the future. And being a predictive animal, the stock market will look forward to the recovery from the current period of economic stagnation. It may actually still see some negative headlines with respect to things like employment, production, inflation. But in the meantime, the stock market is trying to predict where profitability of the companies that make it up is going, as we head towards recovery later this year and early in 2009.

BRAND: So, is it too soon to tell or can you tell right now if this is a permanent turnaround, a permanent increase or...

Mr. KNAPP: Well, I like to be optimistic and I think that it is. And I think recently we've had a pretty big change in sentiment with respect to investors in not only the equity market, but in fixed-income markets and commodity markets as well.

BRAND: General Motors announced this week that it lost more than three billion dollars in the first quarter. Lots of other big companies have announced similar big losses, Citibank included. Why haven't these really bad earnings reports dragged down Wall Street?

Mr. KNAPP: Well, again, it's optimism with respect to the future principally, really other than the financial sector, companies in general are doing OK even though the economy has slowed.

BRAND: How accurate is Wall Street's health as a barometer of the overall economy? You're saying it's predictive.

Mr. KNAPP: In general, I think it has been pretty accurate, and I think it's very accurate right now. Again, I'm not in a camp that thinks that we have been or going into a recession. And that I think that perhaps there has been a little mongering with respect to the level of economic stagnation that - if you look into the statistics, and if this is actually declared a recession, it'll be the weakest recession that the U.S. has ever had, if it's ever made official.

BRAND: You're kind of in the minority of...

Mr. KNAPP: I am. I am, but I think I've got the evidence on my side. And we saw that for instance today in the payroll survey number while it was weak, and 20,000 fewer jobs in the economy, it's certainly not reflective of a severe slowdown. In a severe slowdown, you would expect that number to be minus about 100,000 or minus 200,000. So, while, you know, regrettable for the folks who lost their job, it's not nearly as weak a picture as maybe some other forecasters would portray.

BRAND: I guess that might be small comfort to people who go to the grocery store and say, oh, I can't afford to buy as many groceries as I could before. I can't afford to fill up my car anymore or I'm about to lose my house.

Mr. KNAPP: I still think that those prices will come down as supplies pick up in agricultural commodities, as we hopefully will have a pretty decent growing season. And that some of the speculation will be removed from the energy-related commodities as people become more interested in the stock market. That's always been the case after every recession. There is that period of recovery, and I think that the worst is over with respect to the credit crisis, and with respect to this economic slowdown, and then we can start looking forward to a more optimistic future.

BRAND: Well, thank you very much.

Mr. KNAPP: Well, Madeleine, thank you.

BRAND: My pleasure. That's William Knapp. He's an investment strategist for a division of New York Life.