We’ve heard crazy stories about the future Dow Jones Industrial Average (DOW). In fact, a group of analysts working for Calpers (California’s largest Pension Fund, for teachers) had based their ability to maintain their fully funded pension on the fact that the DOW was 28,000 for 2009 and for 2099 it was 28,000,000 pts ( yes, 28 million). which is a bit lush by any stretch of the imagination. That, of course, was just before the 2008 financial crisis (Cite: Wall Street Journal, article; “Dow 28,000,000: The Unbelievable Expectations of California’s Pension System,” by David Crane, May 19, 2010).
So as we approach the final days before we get to DOW 20K and Christmas 2017, apparently, the stars have aligned. How did this happen so quickly, especially at a time when we were told that if Hillary Clinton didn’t win the election, our stock markets would crash? It turns out that all the major indices are at an all-time high.
Such pessimism was also perpetuated by the mainstream media in Britain just before Brexit. So what is causing this stock market rally and the bigger question? how long it will last as we are way behind for a major correction, we have actually been behind for over a year as many of the major companies are trading PE ratios (share price over expected earnings ) that are at or above the Dot Com Bubble highs. The DOW at that time around 1999 was just 9,000 points.
So what brings us to this point in time? Many things, here are a few:
– Trump’s rebound
– The uptrend
– The flight to safety
– Low interest rates
There was an interesting article in Reuters on December 20, 2016 titled: “Nasdaq Goes Up to Record, Dow Beats Eyes at 20,000” by Noel Randewich that said:
“The Dow and Nasdaq Composite rose to record highs on Tuesday in a rally fueled by optimism about the policies of US President-elect Donald Trump. US stocks have seen a decline since the November 8 presidential election, with the Dow rising 9% and the S&P 500 gaining 6% on bets that Trump’s plans for deregulation and infrastructure spending will boost the economy “The market is focused on Trump’s agenda, which are the tax cuts, infrastructure spending and deregulation, “said Jeff Zipper.”
So the question is: what’s next? Well, it looks like the Trump Economic Plan could actually set our GDP in line for a 4% growth rate just as it promised. The Fed is concerned about inflation and has already decided to intervene and raise rates.
Let’s face it, lowering the corporate tax rate will stimulate growth, and with growth comes new businesses and expansion. Things are about to get interesting and we will have some nerves and fluctuations in the market as the New Normal takes hold. Consider all of this and think about it.