Inside Wall Street: Enjoy the Dow's ride to 16,000

Both the incorrigibly unhampered DJIA and broader S&P 500 have been rocketing to record highs.

By Gene Marcial May 20, 2013 3:38PM

There hasn't been any "May Day" calamity this month, as many skeptics had predicted. Instead, the market's barometers have been climbing to multiple new highs. So it's been a downer for the believers in the "Sell in May and Go Away" market strategy.

 

The Dow Jones Industrial Average has been incorrigibly unhampered, posting its  221st record closing high this year at a majestic milestone 15,354.40 on May 17. The broader S&P 500 stock index also climbed to another record, at 1,667.42, and the NASDAQ composite index soared to its highest close since October 2000 at 3,498.97.

 

Time to worry? 


If you are among the everlasting naysayers, you would be probably start warning that the market is teetering close to the edge of the cliff, about to tumble to its deepest point ever. This time it is different, you would assert, "as the end is near, with the pullback close at hand." We've heard that before.

 

In mid-November of 2012, when the Dow was at 12,798 and the panic about the so-called Fiscal Cliff was shrouding everyone's thinking, the undaunted bears warned that the Dow would plunge to 12,000 or lower because of the wrangling in Congress about a looming budget crisis.

 

I wrote in this column at the time that the Dow would not only pierce through its record high of 14,164.53 but blast off beyond and above the seemingly unreachable 15,000 zone, and that the S&P 500 would rocket to more than 1,600.

 

Stock market copyright Digital Vision, SuperStockWe all know now where the Dow and the S&P 500 have been heading since then! One healthy sign about this raging bull market is the large number of disbelievers that continue to predict the worst for the market. That's a positive. When everyone turns into big believers, it's time to run for cover.   

 

But based on the analyses of several dedicated market watchers I trust, the Dow and the S&P are definitely moving even higher from their current record highs, with the Dow catapulting to more than 16,000 and the S&P boiling to 1,700 sometime this year. Sure, that oft-predicted big pullback will occur before then  -- and indeed both the Dow and S&P retreated slightly Monday afternoon, after hitting new highs earlier in the day -- but that would be a healthy development for the market from which it will again rebound.

 

When that correction or pushback finally comes, however, be sure to take it as a "decline of opportunity." Investors should be ready then to buy their favorite, fundamentally sound stocks at much lower prices.

 

I have always advised that investors should have a "knockout list" of stocks they expect will be knocked down during the pullback, which they should buy at opportunistic prices.

 

That has been the winning strategy pursued by most of the money managers at the large institutional investment firms. 

 

If you've been a disbeliever in this bull market, you would have missed a lot of the opportunities. Seymour Zucker, one of my favorite editors when I was writing this column for years in the pre-Bloomberg Business Week, had a standard answer when people asked him about the market's behavior: "There are more buyers than sellers," was his stock answer when the market was speeding higher. And his explanation when the market was spiraling down: "There are more sellers than buyers." And that's basically true.


"Clearly, buying has exceeded selling by a wide margin because institutional money managers see a bright green light and really have no other alternative to invest their clients' cash but in stocks," notes market analyst George Brooks, who writes the blog, "Investor's First Read." This is all about supply and demand, he adds, "the balance/imbalance of buying vs. selling. No algorithms needed, so it's that simple."

 

Brooks argues that since the advance is driven by a "preponderance of buying over selling, a correction will have to occur as a result of a more even balance between the two." Currently, brief declines of one to three days are reversed abruptly by sharp rallies as buyers use any pullback as an opportunity to step in, notes Brooks. 

 

Basically, the market is largely about perception, about what it believes lie ahead in terms of the U.S. economy, corporate earnings, and the global picture. Despite the gross pessimism  that captivated the news headlines over the past two years, exacerbated by the polarizing politics in Washington and the recent presidential elections, the market finds the outlook as favorably positive -- and improving.

 

According to Sam Stovall, chief investment strategist who also heads the investment policy committee at S&P, global growth in 2014 will firm up to 3.5% from 2.6% expected in 2013.

 

In the U.S., gains in the housing sector, lower household debt, and an aggressive Federal Reserve Board should help economic growth rebound to 3.1% in 2014 from 2.7% seen for 2013, predicts Stovall.

 

In terms of individual "knockout" stocks, I published and listed in January 2013 of a dozen stocks that I figured would outperform, and which I believe should continue to do well over the next 12 months.

 

They are Home Depot (HD), Walt Disney (DIS), Apple (AAPL), McDonald's (MCD), Bank of America (BAC), CVS Caremark (CVS), Facebook (FB), Pfizer (PFE), UnitedHealth Group (UNH), Ford (F), TJX Cos. (TJX), and Coca-Cola (KO).

 

When I published the list, HD was trading at $67 a share, it's now at $76; APPL was at $450, it's now at $433; MCD was at $93, it's now $101.54; BAC was $11.51, it's now $13.43; CVS was at $51, it's now $59; Facebook was at $32, now it's $25.82; PFE was at $26, now it's $28.96; UNH was at $56, now it's $62; Ford was at $13, now it's $15; TJX was at $45, it's now $51; and KO was at $36, it's now at $42.

 

I believe this group will continue to outperform over the next two years.

 

To this list, I would add Google (GOOG), now trading at an all-time high of $916. Analysts are betting the stock will rocket to between $925 and $950. The big bulls, on the other hand, see Google soaring to $1,000 a share.      




Gene Marcial wrote the column “Inside Wall Street” for Business Week for 28 years and now writes for MSN Money’s Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.     



46Comments
May 20, 2013 5:03PM
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"Big Ben" has said in testimony that were all suppose to be in the market these days. And if you are in your 60's-70's-80's & 90's, well in Bens eyes their is no place for safe haven fixed income types in his view of the World. Goof and screw up chasing the market then I guess you end up as a Wal-Mart door greeter. Hey nothing wrong with the market if it operates on the up & up but I did not realize that the role of the FED is to determine where we are forced to put our money and who the winners and losers will be.

 

We saved all our lives and have watched almost all of our interest income dry up. Played by what we thought were the rules and now retired have found that Big Ben & the G-Man had played us for chumps tilting the odds just one way.

 

We were told to save and provide for ourselves, fat chance!!

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ROFL

 

With Bernanke pumping $85 billion a month into the stock and bond market and who knows how much the banks are borrowing at zero percent interest from him.

 

Just what kind of bubble do you think we are blowing up here???

 

Considering China has dropped the dollar as a trading currency.

 

Next year when we have to buy yuan to purchase anything and nobody wants our dollars just what condition do you think the stock market will be in???

 

The fact that Bernanke is having to pump more money into the economy now then when the crisis started

 

SHOULD BE YOUR FIRST CLUE THAT THINGS ARE FALLING APART FASTER THAN ANYONE THINKS.

 

the second clue is taking out the top half of American wages and earners the bottom half of all workers 68,000,000 of them bring in only $1 trillion dollars. Doing the math that means the average wage of half of Americans is only $14,705 a year.

 

GO AHEAD I DARE YOU TO DO THE MATH on this one.

 

Yep the middle class has collapsed in America and we are left with only super rich and super poor people.

 

CAN YOU SAY WELCOME TO THE THIRD WORLD???

May 20, 2013 7:36PM
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As always, the analysts base their predictions on the current direction of the market.  Same thing as predicting the weather by looking out your window at the current weather.  This methodology works great until it doesn't, and that's the trick - figuring out when it will stop working.
May 20, 2013 4:28PM
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Is this guy Anthony M.'s replacement?

May 20, 2013 6:11PM
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The Velocity of M1, M2, and MZM is telling a story. Doesn't look like a good one.

Concerning the Stock Markets, if funny how the Big Boys are always continually selling while at the same time,  they advise everyone else to be permanent Longs.

May 20, 2013 8:22PM
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The bulls are of the opinion that there are no asset bubbles. The stock market is reasonably priced and should go higher based simply on fundamentals. The housing market is healing as prices reach more "normal" levels. Unemployment is declining. And so on and so forth. They discount any potential for negative consequences from central bank money creation. Welcome to Disneyland folks!!!  The happiest place on earth.

If creating money out of thin air solves all of our economic problems let's do more of it. How about the Feb double it's balance sheet over the next 12 months. Maybe even triple it. Same for Japan, England, Europe, and China. of course the central bankers won't go that far. They know they are navigating in uncharted waters. Perhaps the seas will remain relatively calm. Perhaps not. We are all just along for the ride. How does that make you feel? 
May 20, 2013 5:22PM
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It's the big bank gambling houses that will walk away with your money when it all comes apart, like they always do. They've got the laws, the politicians, and the fed all in their pocket. And soon they will have your money in their pocket too, if you play their game.
May 20, 2013 5:21PM
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The stocks are way over priced and instead of a small correction, I think it's going to climb higher and higher then the big knock out punch. It's going to drop like nobodies business. Could this stock all-time -high be the count down to the end of the dollar? When are the Fed's going to stop buying our bonds and stop giving money to the banks for their foreclosures on housing and cutting food stamps, could be the trigger?  It seems like we are watching the New Years Eve ball as it goes up, knowing it soon must come down. Hold on to your shorts, it's going to be the ultimate ride to hell when the stocks crashes and dollar right behind it. Could you see Marshall  Law coming to your near by town?
May 20, 2013 4:34PM
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Hey Mr. Kool Aid... no verifiable validation of continued climb? This Bullsh t run has no more legs. The Federal Reserve is being challenged as to what QE has really done. Most of us know what it's done, and are preparing the BBQ grills for all the tender Fed-fed investors carefully ranched like Kobe Beef. You look like a child-less booze Gene...
May 20, 2013 8:27PM
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It is going to come down, there is going to be a big correction, the higher the market goes the bigger the correction. We just don't know when it will happen.
May 20, 2013 6:39PM
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Dow 16,000 in ’07
by James Altucher 
12/07/06 - 10:38 AM EST
"I’m expecting ther Dow to reach 16,000 by December, 2007"
May 20, 2013 4:50PM
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Do any of these guys know what they're doing? At least he's not as bad as Anthony.
May 21, 2013 1:34AM
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When did "what goes up must come down" get repealed?

 

May 20, 2013 5:04PM
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Looks like somebody's isn't convinced that the USD and US economy are the best bets as both ABX and GLD were up significantly today. I can't wait for the next budget and spending crisis from DC.
May 21, 2013 10:15AM
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Who is really making the most money and at what cost to our country?? How many future generations of kids will pay. YEAH ENJOY THE RIDE and don't forget to jump before we hit the BRIC WALL!!!!!!
May 20, 2013 10:04PM
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Nothing smarter than buying high and selling low. I wonder how much money Gene made in 2008.
May 21, 2013 10:40AM
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"One healthy sign about this raging bull market is the large number of disbelievers that continue to predict the worst for the market. That's a positive. When everyone turns into big believers, it's time to run for cover."

Umm...Disregarding whether I agree or disagree with your outlook, I'm confused by your article.  You tell us we should be afraid when everyone's a believer.  Yet, that's what the entire point of your article is trying to convey.  If you're trying to convince your readers that all the markets are going to continue to hit new highs and "make us believers," shouldn't we be afraid based off your rationalization?  Once we believe you, we should then be afraid?  Your whole article/theory is now void. 
May 21, 2013 7:43AM
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I will not be fooled/screwed for a third time. I will have less than 40% in stocks before this month is out and I will sleep soundly and laugh when the rest of you start your bitching again.
May 21, 2013 6:59AM
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   It's Different this time! Everyone, including the ones on food stamps should be buying these undervalued equities right now as we head to Dow 20,000 - 25,000. We will never pay back the 17 Trillion in debt and interest rates will NEVER get back above 4% in our lifetimes. Sell your Gold & Silver while you can still get something for it!  Just get your money in the market and enjoy 2-3% gains every month. I love this Country!
May 28, 2013 6:15PM
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One thing I'm sure of;  the dollar is worthless.
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