Stock Market Shatters Record, but Can It Last?

May 8, 2007 — -- The average price of a gallon of gasoline hit $3.05 last week, just 2 cents below the record, while the Dow Jones industrial average shattered another record, hitting 13,321.

The Dow has been on a winning streak, finishing in positive territory for 24 of the last 27 trading sessions. That hasn't happened since 1927.

But "Good Morning America" financial contributor Mellody Hobson said there was reason for caution with the markets, because what's happening now is reminiscent of the market activity before the stock market crash of 1929.

"I've been saying it consistently: I'm worried about the stock market," Hobson said. "People think I'm nuts because I'm saying it in the middle of one of the most spectacular bull runs we've ever had. This is going to be 5 years old, this bull run, this fall. It has defied gravity."

Hobson said this run was driven in large part by strong corporate profits.

Gas prices affect everything, Hobson said, including not just families but companies, making people and goods more expensive to transport. Companies have passed those costs on to customers by raising the prices of their goods and services.

There has also been a spate of huge merger-and-acquisition deals that have helped the market, Hobson said.

"These billion-dollar deals are unprecedented," she said.

Hobson's message: The market's bull run can't last forever. That doesn't mean you should pull out of the market, but rather shift assets and diversify your portfolio in order to reduce risk.

Could gas prices eventually hit $4 per gallon?

The difference between $3 and $4 gasoline would cost the average family $1,000 a year, Hobson said.

The story of gas prices is one of supply and demand. Demand has remained steady, while supply has been interrupted because at least a dozen refineries around the world have had problems.

Hobson said consumers shouldn't panic, because the demand problem is more "bad luck" than anything.

"I would say calm down," Hobson said. "We've had a one-time case of bad luck here. Even with the wild card of the Middle East out there, I would suspect things will settle down from here. Even though we're entering the peak driving season, I don't think we'll see a lot more in terms of prices rising from here."