After Dow 14,000, what happens next?

The odds favor the market trying to set new highs in the next few months. But for stocks to continue to move higher, a number of factors will need to fall into place.

By Charley Blaine Feb 1, 2013 6:20PM
Stocks finished Friday at multiyear highs, with the Dow Jones industrials ($INDU) closing above 14,000 for the first time since October 2007.

So what happens next?

In the short run, there will be an assault on the closing highs the Dow and the Standard & Poor's 500 Index ($INX) set on Oct. 9, 2007 -- 14,164.53 for the Dow and 1,565.25 for the S&P. The Nasdaq Composite Index ($COMPX) may have risen 150% since bottoming in March 2009, but it's still a long way from its all-time high of 5,048, set on March 10, 2000.
The Dow has risen 6.9% for the year, with the S&P 500 up 6%. The Nasdaq is up 5.3%. The Dow finished January up 5.8%, its best January since 1994. The S&P 500's 5% gain was its best for a January since 1997.

Confirming that the assault will occur are gains among stocks in the Dow Jones Transportation Average ($DJT) and the Russell 2000 Index ($RUT).

But what happens, say, for the rest of 2013 depends on a lot of factors, including: Arrow Up © Nicholas Monu, iStock Exclusive, Getty Images

The capacity of the Obama administration and Congress to negotiate a budget deal that prevents sequestration. This is the mandatory imposition of 10% spending cuts. Deep and abrupt spending cuts will harm the economy. Period. But it is not clear if sequestration will be avoided. It looks like the Republican leadership in the House wants to avoid sequestration because they know the economic consequences could be nasty and they'll take the blame.

A continuation of the economic recovery. This obviously assumes sequestration is avoided. Most of the economic reports in the last two months suggest this is possible. Manufacturing looked like it was regaining some momentum in December. Auto sales in November, December and January were quite robust. Homebuilders are saying they are seeing a fair amount of demand. Many markets saw prices increase in 2012. Friday's jobs reports was both downer and source of cheer. The downside of the report was that the economy may be creating jobs, just not gobs of jobs. An upside of the report is that construction employment, which collapsed in the recession, is starting to gain some steam. 

Dare we say it, some pullback in stocks. While a Dow above 14,000 makes people feel better about their finances and is welcome news, the market almost certainly will see some pullback. It's necessary to remove some of the froth that has built up in recent weeks. A market that goes up without a break is asking for trouble. Many numbers now suggest the pullback may come relatively soon.

The Federal Reserve. The Fed has enabled the huge rally since the market bottom of 2009 by keeping interest rates low. The central bank says it won't start to raise rates until unemployment falls below 6.5%. With the unemployment rate at 7.9%, there shouldn't be any worry the Fed will suddenly start raising interest rates until 2014 at the earliest.

China and Europe. One of the biggest concerns for just about all of 2011 and much of 2012 was that economies in China and Europe were about to fall apart. China appears to be growing again. Europe may be stabilizing. But the pain has been enormous. Unemployment rates in Greece and Spain are 26.8% and 26.1%, respectively.

Energy prices. Crude oil in New York hit $97.77 a barrel on Friday and is up 6.5% this year. Gasoline prices are up more than 5%. They are a big risk to the recovery and to stocks because they can quickly curb consumer spending growth. Officials at Wal-Mart Stores (WMT) watch fuel prices carefully.

Corporate earnings. So far, the fourth-quarter earnings season suggests earnings are growing, just not robustly. Earnings growth for the fourth quarter is now projected at 3.8%, according to Thomson Reuters, a bit of an improvement over the last few weeks when growth was estimated at less than 3%.

Companies due to report results next week include Yum Brands (YUM), Walt Disney (DIS), Chipotle Mexican Grill (CMG), Visa (V), Starwood Hotels & Resorts (HOT) and AOL (AOL).

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Feb 1, 2013 7:58PM
It's all well and good to hit new highs, except for the bad memories of the last time we hit this high!
Feb 2, 2013 1:27AM
I hate to be a wet blanket on this party but we must remain sober on this. Energy prices killed off several small recoveries so far and probably started the last big recession. I have been watching gas prices making a daily climb and I wonder how high they will be by summer. When energy prices go to high then the entire economy contracts. One would think the government would be watching that one like a hawk.
Feb 1, 2013 11:12PM
Too bad inflation is not factored in here. 14,000 in 2013, has nowhere near the value of 14,000 six years ago.
At this time 14,000 is nothing. To compensate for the loss in the value of the dollar since 2007 we should be around 16,000 to 20,000 IMO.
Feb 1, 2013 11:59PM
The market at its best is a legal scam.  They let us regular folk invest and make modest increases while the super rich jump in and out making millions.  When the market has troubles the rich get a heads up (think facebook's IPO, the rich were warned everyone else sank.  This is just an instance where they were caught)  while the regular people's accounts get crushed.  
Feb 2, 2013 12:11AM
I'm gun shy now, especially after the dot com bust back around 2000, and the next big crash 2007.  I have to believe that's going to happen again but I have no idea what's going to cause it.  I guess that's why I'm still poor!
Feb 2, 2013 8:25AM
As long as Gas prices continue to rise there will be no recovery and if you create 150,000 jobs and 167,000 people lose their jobs nothing has been created tired of the sugar coated ****!
Feb 2, 2013 12:14AM
just shows how much less the dollar in my pocket is worth, next weks headline 5.00 gallon of milk
Feb 1, 2013 11:22PM
The Buble gets bigger and Bigger ... ka=powwwwwwwww
Feb 2, 2013 1:04AM
dont be a out now, wait for the war to start (Iran, it's gonna happen, Israel is going to make sure it does!), then buy back in when it drops to 11, maybe 12 thousand. watch monday and tuesday, you'll see. the big players have ginned up the dow to take advantage of the uninformed! They'll be cashing out next week!  Dont hate the players, just take advantage of the same situation! There is no realistic valuation at 14000, it's all big player hype!
Feb 1, 2013 11:19PM
Oh, come on. it's a money game not the dems or the rep. our system is based on interest rates and GDP. The feds help or hurt depending on the direction the economy is heading and that ties into the world market. Everyone needs to stop blaming the other guy and start to realize that we Americans are now in a global market. business as well as the feds are all in harmony with each other and corrections on that scale are small in the long run but can hurt at the immediate time. our problem is inaction on the part of our 2 parties and or the desire to push things thru before realizing the full impact...Obamacare. Obamacare has some very good ideas and some bad and there lies the problem by pushing it thru without fully understanding the impact of the law. yes, a lot of people are now covered, but at what cost...I am middle class yet my taxes went up 300.00 starting in Jan. and my ins. rose 30%. had OUR government slowed down and read the law then adjusted it most would have accepted it with open arms . That is just an example of my point. We have a lot of very good people running our country, we have got to have faith and if they let us down vote them out. But it needs to be addressed as to the action of the person in office not the party.
Feb 1, 2013 11:47PM
I would have to say that the laws of gravity will apply.
Feb 2, 2013 12:05AM
this news should drive the price of gas even higher. we will never get ahead in this country again.
Feb 1, 2013 11:57PM
Its a beautiful thing to get back where we were 4 1/2 years
Feb 1, 2013 10:40PM
Now it tanks, and all the hard working Americans who were conned into thinking they could actually make $$$ lose it all...other than that, it's all good...
Feb 1, 2013 11:40PM
I would just like to say...if the government is big enough to give it to us...they are big enough to take it ALL away... on welfare, who will pull the wagon when everyone wants to ride, on gun control...remember it's not there to protect just your home and family, it's there to fight an oppressive government should it try to take over, on church and state, it is there not to protect the church, its there to protect the government from unwanted influence from the church.
Feb 1, 2013 8:29PM
What happens next?  A wider gap will be created between the poor and the rich, only to come together later.... at the trough.
Feb 2, 2013 10:41AM
Yeah great to be back to where we were 6 years ago NOT!! Houses still way down, gas, food, and everything else way up. Your 401 or IRA may be back, not your dream.
Feb 1, 2013 10:52PM
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