Tags: dow industrials | stock market | points | move

Next 1,000 Points on the Dow Should Be Up

By    |   Tuesday, 25 Nov 2014 02:56 PM

Day to day, small moves in the Dow Jones Industrial Average are impossible to predict.

There’s no way to know whether the next 10-point move will be higher or lower. But in the long term, a predictable pattern of the price action emerges.

Stocks move higher when the economy grows and leads to higher earnings for companies traded on the stock exchanges. When the economy weakens, earnings decline and stock prices fall.

This pattern is the secret behind long-term buy and hold investment strategies. When you hold stocks for 20 years or more, economic growth pushes the prices higher.

In recent years, the pattern has become less reliable. Japan has suffered through a bear market for the past 25 years as the nation’s economy struggled.

The Dow’s growth still depends on the strength of the American economy. While it is unlikely the U.S. economy will experience rapid growth, it is delivering steady growth. As a result, earnings of large companies are growing.

In 2015, large companies are expected to grow earnings by about 14 percent. With that level of growth, stocks should trade at a higher than average level of valuation. We usually measure valuation with tools like the price-to-earnings (P/E) ratio. Normally, major stock market averages have a P/E ratio of 15 to 17.

To reach a P/E ratio of 17, the Dow would need to rise to about 19,000, more than 1,000 points above the recent price. Investors should expect that level to be reached before the end of 2015.

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MichaelCarr
Day to day, small moves in the Dow Jones Industrial Average are impossible to predict. There’s no way to know whether the next 10-point move will be higher or lower.
dow industrials, stock market, points, move
252
2014-56-25
Tuesday, 25 Nov 2014 02:56 PM
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