Barron's: Next Stop Dow 30,000... On One Condition

Tyler Durden's picture

The financial magazine which has made an art out of calling for big, round numbers in the Dow Jones Financial Index (as a reminder over 20% of the Dow's surge since the election is due entirely to Goldman Sachs), most recently with its "get ready for Dow 20,000" call from just over a month ago, has done it again:

While there are still those - pretty much anyone who still cares about fundamentals - who are scratching their heads at Dow20K, according to Barrons "the Dow hitting 20,000 was no fluke. Today’s stock prices are well supported by solid prospects for corporate earnings and economic growth." 

In fact, Dow 30,000 is just around the corner... well by 2025. All President Donald Trump has to do, according to Barron's, is "avoid stumbling into a trade war—or a real war." Some of the profound insight behind this forecast so reminiscent of the infamous "Dow 36,000" prediction which hit just around the time of the last market bubble.

Clearly, part of the propulsion behind stocks has been the Trump administration and its flurry of business-friendly edicts. If Trump can succeed in reducing regulation and lowering corporate taxes, stocks should surge further this year. An additional 5% or even 10% gain in 2017 wouldn’t be surprising. Our projection of 30,000 by 2025 is based on our analysis of historical data provided by Jeremy Schwartz, director of research at WisdomTree. This data, which looks at stock market returns for rolling five-year periods dating back to 1871, suggest stock market gains will fall below the market’s typical annual gain of 6% after inflation in the next five years before accelerating above the average in the years after that.

Then again, perhaps Dow 30,000, which would require China to inject in at least another $30 trillion in debt in the next decade without somehow hitting the Minsky moment tipping point, is not so certain: it all depends on whether Trump can avoid war, either literal of metaphorical:

"a few of the new administration’s policies pose a serious threat to the economy and stock market. The most evident one last week was the trade spat with Mexico, with the White House at one point floating the idea of a 20% border tax on Mexican goods entering the U.S. If Trump gambits like this were to trigger a trade war, the world economy would suffer. The Dow would have a hard time getting to 30,000 by 2025."

Alternatively, one can make the argument that a trade, or real war, would guarantee hitting the Dow 30,000 that much quicker: after all, it would force the Fed to resume QE, monetizing not just bonds, but ETFs, equities, and everything else in capital markets in order to preserve confidence in the global financial system.

Ironically, in the same Barron's edition, we also read a more nuanced take of what Dow 20,000 really means from Randall Forsyth who notes says that "while the Dow is the gauge that regular folks use to keep track of the stock market, a columnist in the Financial Times condescendingly called the attainment of the 20,000 mark last week “fake news.” The flaws in the price-weighted DJIA are known to anyone who cares about such things, but it was the best method available to Charles Dow before the turn of the 20th century. As a result of its modus operandi, David Rosenberg, chief economist and strategist at Gluskin Sheff, observes that moves in Goldman Sachs Group (ticker: GS) have eight times the impact on the Dow as those in General Electric (GE).

So-called survivorship bias also has benefited the Dow. Since April 2004, Dave found that, if the eight companies that were replaced in the DJIA had been kept on, the blue chips would have been at just 12,885 now. That date, by the way, is the furthest back he could go to find former Dow companies that are still around. In the process, Apple (AAPL) was added in 2015, after a seven-for-one stock split that prevented the tech giant from having an outsize impact on the DJIA. While Rosenberg notes that tech stocks now account for a quarter of the Dow, up from 2% at the peak of the dot-com boom in 1999, the so-called FANG stocks— Facebook (FB), Amazon.com (AMZN), Netflix (NFLX), and Google parent Alphabet (GOOGL)—wait to be admitted to the blue chips.

 

Not surprisingly, President Donald Trump was more than willing to take credit for the Dow’s hitting 20,000 five days into his administration (arguably more deserved than President Barack Obama getting the Nobel Peace Prize months after taking office in 2009)—a reversal of his declaration that the market was in a “fat bubble” last September.

 

To a more dispassionate observer—in this case, Peter Berezin writing in the BCA Research Global Investment Strategy—the shift represented an evolution from undue pessimism about global growth to unbridled optimism.

And, as JPM has warned every single day in the past month, the next step in the market climbing the wall of optimism may be slippery:

The centerpiece of the Trump program—tax cuts and tax reform—can’t be enacted by executive order. That will take approval by Congress. However, the White House has widening rifts with GOP leaders, writes Greg Valliere, chief strategist at Horizon Investments and a four-decade Washington watcher: “Make no mistake—[House Speaker] Paul Ryan and [Senate Majority Leader] Mitch McConnell can’t stand Trump, and the feeling is mutual.”

While the Dow has been happy to stay above 20K for the time being, the next step may be determined by the Fed, which is meeting next week with the S&P over 200 points above where Janet Yellen warned sstocks are overvalued. As the Fed chair said in May 2015, "I would highlight that equity market valuations at this point generally are quite high," Yellen said.

"There are potential dangers there" Yellen said.

And the main one is that Yellen decides to finally pull the rug from under Trump's market honeymoon. As Forsyth writes, "the FOMC could signal its readiness to raise its fed-funds target at the March 14-15 meeting. The fed-funds futures market puts only a 34.6% probability on a March move, according to Bloomberg’s analysis, instead pricing in the next boost for June and another in September, but not in December. The shock for the markets would be if the central bank actually delivers the three rate increases that it has signaled."

Trump was quick to take credit for Dow 20,000, and as long as stocks keep rising, nobody will complain or contest. But how will traders and politicians react after the first 5% or 10% correction, the first bear market, and soon thereafter, an economic collapse because without central banks injecting another $14 trillion in liquidity, real economic price discovery will finally happen. With Trump's tendency to accelerate all timelines, we won't have long to wait to find the answer.

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J S Bach's picture

Dow 30,000 on one condition... QE to infinity.

Croesus's picture

Oy Gevalt, 30K Dow will mean it's Shoah-time!

lil dirtball's picture

You live in a theme park. The stock market will always go up. There will always be a parade of your favorite characters. Park bux will always have value. Supply, demand and scarcity do not exist and will never be a problem.

Never mind who owns or manages the park. Spend your park bux and enjoy the rides.

The Saint's picture
The Saint (not verified) lil dirtball Jan 28, 2017 12:47 PM

30,000 Dow is only 500 points a day for 20 days.  We could be there before tax day!  LOL

Could be there sooner if Trump announces that the Social Security Administration is going to start investing in the stock market.  :-)

 

BigFatUglyBubble's picture

Wouldn't be surprised.  The bubble-man cometh. 

Escrava Isaura's picture

Nothing new within this article by pointing out that Trump will be very good to the current “Wall Street” establishment.

But, there’s a but there:

If Trump tries to help the US workers by either raising tariffs or increasing the debt, that is a NO NO because there are dangers there.

See the Problem? Something has to give.

Good luck to Trump appeasing both……Or either.

 

 

DownWithYogaPants's picture

Is this not a marker of the topping?  When covers like this come out?

BullyBearish's picture

30,000 by 2025 my A$$, the worse things get the more likely we'll be at 30,000 by the end of 2017!!

Déjà view's picture

29,035

"Because it's there"...

~ George Mallory 1923

BabaLooey's picture

Yeah Yeah...Barrons

I remember these fuck-knocks in January 2000 when the cabal of Joe Abby Conehead and the rest of the prognosticators were all saying;

FULL SPEED AHEAD!

How'd that work out? 

FAIL

Predicting the Dow at EITHER 30,000 or 3,000 is akin to saying the weather 3 weeks from now is going to be_____________.

The stawk casino has more icebergs and landmines to traverse here than a Cambodian barge in the North Atlantic - and it's January.

Trump needs to knock off the tweet-trumpeting.

These asshats need to come off their opium-induced haze and stop saying it's "great earnings" and reasonable valuations.

This casino is more bubblish than a trophy wife's morning bath.

 

Archive_file's picture

"You live in a theme park."

Fucking LOL.

Ignatius's picture

Why stop at 30,000?

What is it, is ZH a bunch of doomsday cock-blockers?

AGuy's picture

LOL! No way the Dow will be anywhere near 30K, Try 3x10~30 power. The Entitement and pension problems is going to force the gov't to print...print..its way out. Once the inflation genie gets out it will be game over. If they try to raise rates to kill inflation the Federal gov't will be forced to default since it will not have the revenue to service its debt.

The central planners's picture

The dollar index in 200 and silver for half buck.

Wulfkind's picture

2 conditions..... QEternity and 30 Trillion in debt.

Making America Great Again.....by increasing the Debt "BIGLY"

PlayMoney's picture

The one condition is that Earnings continue to fall, its a perfect inverse relation.

Raffie's picture

President Trump's son has a magazine?

Way cool.

 

I will corner the market on the Bolonium stock.

readyforit's picture

Well what the fuck.  30Trillion debt here we come.

GUS100CORRINA's picture

Yes SMOKEY ... ALL IT TAKES IS 1 TRILLION DOLLARS OF DEBT TO BUY 1000 DOW POINTS. 

WHAT A FARCE!!!

Next event to upset the applecart: Psalm 83 WAR AGAINST ISRAEL. The foundation for this prophetic event was laid two weeks ago in Paris, France!!!

Next DIRECTION looks to be DOWN, not UP.

AGuy's picture

"Well what the fuck. 30Trillion debt here we come."
LOL! Smoky you had to have known all along that it was already baked in. The only way the gov't can avoid a debt explosion is to eliminate all of the entitlements & Pensions (state & local and perhaps many corps too). If they eliminated entitlements and pensions every gov't worker would go on strike, and every city would have massive riots.

With the exception of a tiny minority, Americans believe in their entitlements, pensions even more than they believe in Jesus.
ZH readers are the exception and from some of the comments I read, even a group of ZH readers believe the entitlements & pension plans can be fixed (aka means testing, or other restrictions).

alexcojones's picture

Reminds me of the mindset that said the Titanic was Unsinkable.

As long as the ship avoided icebergs it was.

Wonder what OUR iceberg moment will be?

FreeShitter's picture

Difference ths time is the fed can print icebergs. The titanic will sink but only at their convenience.

Pasadena Phil's picture

If you can't wrap your head around a Dow of 30,000 (and I can't) for the near term, stop thinking on the macro level. Like the very, very old saying goes: "It's a market of stocks, not a stock market."

Anyone looking for value can now find it even before putting their glasses on. Who cares what the broad market does? Fundamentals DO count even if you don't get rewarded right away. And with the NWO now being castrated globably, you will only find value by looking for it and it is emerging everywhere today. Grab these prices while you can and if there is a sell-off of the broad market, hold on to them and buy some more (most of them pay very nice dividends BTW).

Fundamentals DO matter right now and the US economy is gearing up to once again lead the world. Why is that a bad thing? The "risk on/risk off" framework is crashing and burning. We are returning to the old framework of fundamentals. Stop buying indexes and ETFs and you will see the light!!!

Arnold's picture

Your uninhibited optimism is commendable.

(quick get the net)

BigFatUglyBubble's picture

The mirage will dissipate.  When people realize their quality of life is not getting any better under DJT (people are impatient) the psychology will turn.   

two hoots's picture

There is enough money to get us there.  It only has to pool into US equities which is a real possibility.  PE's to the moon.

Wulfkind's picture

There are enough Federal Reserve Notes ( ie debt ).  There is no such thing as money.  Only debt issuance from the Federal Reserve.

Pretty soon even what you call money ( physical currency ) will be no more.  Then what are you going to call money?  And don't say gold.  No one takes gold at Wal Mart and gold can be banned too just like during the Great Depression.

two hoots's picture
Okay, there are enough 0's & 1's in electronic accounts to..............   I don't hoard the PM's, better is a good garden, chickens and wine, lots of wine.
Arnold's picture

My zeros and ones seem to know  only the subtraction function.

business as stusual's picture

It is called trade. There is a reason it is called trade. The thing dipshits like you fail to comprehend is that if there is no money, there will be no fucking Walmart. No matter what the circumstances, people always manage to develop some type of medium of exchange. Get over it.

AGuy's picture

" fail to comprehend is that if there is no money, there will be no fucking Walmart. "

Odds are there will be no Walmart. I doubt there are any open Walmarts in Venezuela these days. When the value of the dollar collapses, so will imports.

That said, its possible that Trumps tariffs make let the inflation genie out. Tariff are going to make the costs of everything go up and create supply shortages. Its probably going to take 10 or more years for US to get back its Manufacturing Mojo, and I doubt the Genie can be capped for that long.

I don't think re-shoring is going to significantly improve manufacturing jobs, as most re-shored factories will large be automated. The factories in China already began switching to automation about 3 or 4 years ago. Chinese factories have already laid off more than a million factory workers. Plus the majority of previous factory workers are headed for retirement, and generation snowflake isn't going to be able hack a factory job.

"No matter what the circumstances, people always manage to develop some type of medium"

Sure at gun point, like they do in VZ.

Odds are that a trade war is going to result in a hot war. China is dependant on exports to the US. If the tarriffs crush their exports they are going to look to other means to support their economy, via Military Keynesium and invading other nations that have the resources they need.

Its also possible that the trade war, is going to end the US dollar as the reserve currency. If US imports collapse then there is less of a need to trade in dollars.

Chi Juan's picture

Oh okay, Barron's is always right.   NOT.

Funny how they miss one move in the markets after another and still have this attitude that they have all the answers.

 

Too many people are guessing what the markets will do and are calling themselves analysts. Nice to see there are some real analysts out there.

 

The group of analysts who split off from Goldman about 30 years ago have been nailing markets. 

They show past time stamped charts to prove their rightness.

https://t.co/f3mU9N8rc4          

LowerSlowerDelaware_LSD's picture
LowerSlowerDelaware_LSD (not verified) Chi Juan Jan 29, 2017 1:23 PM

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Please don't give him the satisfaction of seeing his site hit counter go up from ZH clicks. He's not very bright, but eventually he’ll go away if his spam scam doesn't bring income from ZH. The spam accounts are: AliSONY, Babs.St.Louis, Billy G, Chi Juan, Dr.Carl, ErikE, FemDayTrader, FRLEPU, Irvingm, jasony, John Beau, KanSass, KC Spike, MadhyaBharatx, Marilee, MexInvest, MikeM54, Miss Lou, Mon T, P Christmas Carole, Penny Trader, Pinky and the Brain, PUNE,  RoBERTAZ, RonnieM, RudolPHDs, Sonya B59, Stan Your Man, StevieTexie, Timming, Van G, Virginia Wooolf, wisetrader224, and xantippa
buckstopshere's picture

Dow 30000 by 2025 is a 5.2% average annual rate of return.

Philo Beddoe's picture

With or without whiplash volatility? I'll take 3% or 2% if I can sleep at night. Hell, zero even looks good if I am income rich. 

buckstopshere's picture

GDP growth of 5%+ per year would be phenomenal to justify the Dow 30000 by 2025.

I just don't see that happening, though.

Philo Beddoe's picture

I give it a 50/50 chance of happening. Not enough of reason for me to enter the casino. I am much better investing in my own business and increasing income after taxes. 

buckstopshere's picture

I should clarify that it would be nominal GDP growth, which is possible if inflation is 4% or higher.

The dollar price of gold has gone up a little over 4% each year on average since the middle of the 1980s. Nominal GDP growth of 5% per year would mean a real GDP growth of about 1% per year on average.

The GDP deflator, however, uses the CPI, which we know is flawed, because it underestimates the rate of inflation, and thereby overestimates real GDP.

PlayMoney's picture

Its not returns, its debt added that will get us there.

Philo Beddoe's picture

Notice the economic feel good barometer is never INCOMES are going up.  

Well, aside from that $15 hour bullshit minimum wage cheerleading. 

 

buckstopshere's picture

Dow 30000 means $6000 gold.

dlfield's picture

Wait...aren't real wars usually good for the Dow?

Vinividivinci's picture

Who gives a fuck about DOW 30,000...the rich, tax cheating fuckers...that' who.
As for THIS "deplorable"...I just want decent job oportumities with decent pay...
guess who'll get their wish first...hint: rhymes with rich cunts. Oh, wait..that's not a rhyme !

buckstopshere's picture

There will be a lot more job opportunities than under Obama.

Vinividivinci's picture

You're preaching to the choir...that's my belief as well..make that, my hope.

buckstopshere's picture

I have no doubt in my mind that we will see greater economic opportunities.

The burdensome regulations and the specter of higher taxes on productivity ending are a huge development. We will probably see a shift toward taxation on consumption, such as tariffs, to balance the US economy, so that there is less reliance on debt-fueled consumption to grow the GDP.

Riquin's picture

Just drop the sanctions on Putin , eliminating the posibility of WW3 that Obama and Clinto so much desired. Then Watch and see.  !!!