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The market's up, why aren't we?

As U.S. citizens pinch their pennies, stock market investors look on the bright side, breaking records.

By HELEN HUNTLEY and JAMES THORNER Times Staff Writers
Published July 14, 2007

The housing market is in the tank, foreclosures are rising and killer gas prices have put a crimp in retail sales.

So naturally, the stock market is setting records. Both the Standard & Poor's 500 Index and the Dow Jones Industrial Average finished the week at new highs, with the Dow closing in on 14,000.

It's enough to make you wonder what in the name of irrational exuberance is going on.

Some of the experts aren't all that surprised with the run-up.

"The negatives are increasing, but there are still more positive indicators than there are negative," said Eric Bailey, managing principal at CapTrust Financial Advisors in Tampa. "Corporate earnings are one. That's really what's been driving the market since April." Job growth is another.

Investors who are feeling positive about stocks may be taking a global economic view instead of just looking at what's happening in the United States, said Bill Sieffert, senior vice president for Northern Trust Bank in Tampa. "We're the slow one. The global economy the last couple of years has been growing at 4 percent a year, which is not too shabby."

He said when investors are feeling good about the market, they can find ways to put a positive spin on negative numbers: The retail sales were bad, but not as bad as they might have been. The housing numbers were bad, but the pace of the decline has slowed.

"The market is always forward looking," he said. Sieffert said some issues may be seen as "on their way to resolving themselves favorably."

But some market movements don't have much to do with the economy.

Lots of cash is looking for a home and needs to be invested somewhere. Since real estate investing has lost much of its luster, demand for stocks is rising. At the same time, shares of stock are being taken off the market as a result of mergers and acquisitions.

"Private equity companies are coming after attractively valued public companies and taking them private," Bailey said. "In our own back yard, we've seen it happen to Outback, Catalina and other companies."

Clearwater portfolio manager Grady Garrett at LBS Capital Management said this week's rally, which propelled the Dow to 13,907.25, was partly a chain reaction.

He said short sellers, those who bet that the market will decline, had gotten too bold. They operate by selling borrowed stock with the hope of being able to replace it at cheaper prices. When the market makes a strong move up, they scramble to buy stock to cut their losses. That sends the market up further and attracts momentum traders who buy on "breakouts."

"All of that may trigger more money coming in," he said. "If this thing rally is going to fail, it should fail next week. We just have to see how it plays out, if this breakout is going to have legs."

The latest rally is fueled primarily by professional money managers, but many individuals are along for the ride, either through their mutual funds or directly with individual stocks.

As some of his neighbors struggle to sell their over-inflated houses or to stoke their cars with $3-per-gallon gasoline, Don Freeman sits back in his rented Largo apartment and basks in stock market returns that have supercharged his retirement investments. Even nasty gas prices aren't all bad: One of his high-flying stocks is a Norwegian petroleum shipping company whose stock delivers a return of 15 percent a year.

"A recession coming? I don't see any recession," says Freeman, a retired CPA. "I think things look pretty good,"

Tampa resident James Constantino dubs his slice of the current stock market "absolutely amazing."

Of course, Constantino, manager for an energy hedge fund, is perched on profit's peak, with Exxon this week becoming the first publicly traded company worth $500-billion.

"As long as demand outstrips supply prices will go up," he says.

But the stock market is notoriously fickle. One day the market shrugs off bad news and another it seems to dwell on it.

Helen Huntley can be reached at hhuntley@sptimes.com or (727) 893-8230.

[Last modified July 14, 2007, 01:15:35]