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CNN Live Today

Rallies, Sell-Offs Often Short on Information

Aired July 22, 2002 - 14:23   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
KYRA PHILLIPS, CNN ANCHOR: Wall Street rallies and sell-offs often have one thing in common, they're fueled by emotion, not necessarily information.

CNN's Kathleen Hays joins us now with some more information that might have a baring on investor decision making if only they would notice it, right, Kathleen?

KATHLEEN HAYS, CNN CORRESPONDENT: Absolutely. It's really not all doom and gloom.

PHILLIPS: All right, so the difference here, Main Street doing well, Wall Street not doing well. Why?

HAYS: Well, I think that Wall Street is really caught up in the aftermath of a bubble that has burst. Remember, Wall Street is all about stocks, all about bonds, all about investments. You know, really as much as stock ownership has gotten widespread, Kyra, really only about 50 percent of U.S. households own stocks of any kind of at this point, directly in the company, or through mutual funds. That's probably one of the things that is shielding main street a bit.

Now it's also interesting that we can't deny that seeing the stock market get pummeled the way it has is pretty depressing. We have seen consumer sentiment coming down a good bit. In fact, a high- profile survey of investor optimism hit its lowest level in about six years today.

But on the other hand, when you look what people are doing, it seems like maybe their actions are speaking louder than their words. Their chain store sales, for example, weekly reading we get, has been on a pretty good uptrend. Last week, it had a little bit of a dip, but compared to the September 11th attack, when it really got killed, chain stores staying on track, an even auto sales, big ticket items, continue to look good.

PHILLIPS: What about the job market?

HAYS: I'm glad you asked, because we've seen new claims for unemployment benefits, a very sensitive, high-frequency indicator, coming down steadily the past few months. In fact,the latest week they fell 28,000 to 379,000, suggesting the pace of layoffs has slowed. Now, could we get a surprising bump-up? We could. However, most economists think this, suggest we've seen the peak in unemployment at around 6 percent, and when you put in perspective, that's another reason why maybe the carnage isn't so bad in terms of the entire economy and in terms of Main Street, because a 6 percent unemployment rate, historically, is still quite low. If look back to past recessions, unemployment rose to much higher levels, and to say that we've got something about a 6 percent unemployment rate is to say also that we still have about 94 percent of the population employed. We're working. We are taking home paychecks. And that's another thing that's keeping us on track.

PHILLIPS: So with these stocks falling, is there any place where investors are making money?

HAYS: Well, you know, it's that good old mom and apple pie. We're still making money in our homes. Home prices have been rising steadily. Housing construction has held up fairly well. This has been a firm pillar of support for the U.S. economy. And one thing that's happened, of course, as home prices rise -- and that's not so good if you're a buyer; it's good if you're a seller, or home owner -- but mortgage rates have fallen. The weakness in the stock market has pulled down interest rates, and that 30-year fixed mortgage rate down around 6 1/2 percent, or even lower.

You know, we took this rate way back to remind people in the early '80s, mortgage rates were up around 15 percent or higher; 7 percent or lower is a very, very attractive rate, and even if this rate comes up from the low, again, it still makes it possible for people to buy homes that are affordable. And remember, a lot of people are refinancing. When you refinance your home, you put some more money in your pocket each month. So even if your investment portfolio looks bad, that other portfolio, that portfolio that has to do with your home, your refinances, maybe a home equity line of credit, is probably helping to offset pain for many households.

PHILLIPS: Kathleen Hays, thank you for a little bit of different insight there. Appreciate it.

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