BUSINESS

The New Reality? Dow Slides To 5,000, Oil Rises To $50

04/08/2009 05:12 am ET | Updated May 25, 2011

With blue-chip stocks selling for the price of a cup of coffee and unemployment rising, the U.S. economy seems to be heading for a new somber reality of diminished expectations and reduced circumstances.

And it just seems to be getting worse with some economists predicting a dramatic drop in the Dow Jones Industrial Average and an increase in the price of a barrel of oil in the coming weeks and months.

They predict that the Dow Jones Industrial Average, after months of massive losses, is heading in a downward spiral to the once-inconceivable 5,000. The last time the Dow was so low was in November 1995.

As the Wall Street Journal reports:

Despite Friday's small gain, the Dow Jones Industrial Average marked its fourth consecutive week of losses as it tumbled through the 7000-point mark and spiraled to new 12-year lows. The Standard & Poor's 500-stock index is trading below 700 for the first time since 1996.

As earnings estimates are ratcheted down and hopes for a quick economic fix fade, the once-inconceivable notion of returning to Dow 5000 or S&P 500 at 500 looks a little less far-fetched.

Some traders tell Bloomberg News that they predict that oil will soon rise to $50 a barrel, climbing upwards again after plummeting from its peak of $147.27 in July 2008:

OPEC's record production cuts are draining the glut in world oil markets, leading traders to bet that $50 crude is two months away.

Ever since oil began its 69 percent plunge from a record $147.27 a barrel in July, traders have been looking for a bottom. Now that the Organization of Petroleum Exporting Countries reduced supplies 13 percent since September, inventories are falling 1.4 million barrels a day, according to PVM Oil Associates Ltd., the world's biggest broker of energy trades between banks. OPEC will limit exports again when the group meets March 15, according to a survey by Bloomberg News.

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