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The blue chip index broke the 24,000 milestone for the first time on Thursday. Dow and Nasdaq closed at record levels. Fred Katayama informs.
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A meeting on the floor of the New York Stock Exchange shows the Dow Jones industrial average exceeding 24,000 for the first time on November 30. 2017. (Photo: JUSTIN LANE, EPA-EFE)

The Dow Jones mania can have more room to function.

After surpbading 24,000 last week and increasing nearly 300 points on Monday on the optimism that a tax review plan is getting closer to reality after the Senate pbaded a bill over the weekend, Wall Street bulls say that Dow "25K" is quite safe.

But the rally, they say, probably will not stop there.

The increase in the stock of blue-chip should not stop rising until the headlines announce Dow 30,000, say the bulls. And Dow 30K – an additional gain of 22% over current levels – is not an unthinkable level to reach before the average peaks and enters the next bear market, or prolonged decline of 20% or more.

The Dow this year has already fallen through 20,000 and another four thousand milestones on its way to 63 record levels.

"This rally seems bulletproof because every area of ​​the economy is seeing profits," says Chris Rupkey, chief financial economist at MUFG, a New York company. bank based "Twenty-five thousand is too close and nobody sees it as a roof, Thirty thousand may be more likely as a stopping point".

If the Dow's performance in 2018 is similar to its year-to-date gain of approximately 23.5%, it could reach 30,000 sometime next year. However, if the market equals its long-term average annual profit of around 10%, it would exceed 30K sometime in 2020.

The Dow rose almost 300 points on Monday to an intraday record of 24,534.04 as the states In the minds of investors, the Senate vote to approve their tax bill, which is seen boosting corporate profits.

The hopes of considerable tax reductions for US corporations has been a mainstay of the bullish view of Wall Street stocks this year and next. The Senate bill reduces the corporate tax rate to 20% from 35%. The House of Representatives and the Senate have yet to resolve the latest tax bill.

Last week, however, it ended with a volatile note for the US stock market after former President Trump's national security adviser Michael Flynn pleaded guilty Friday to the FBI and said he was cooperating with the prosecutors in the investigation related to the interference of Russia in the presidential elections of the United States. The news created new political uncertainty and raised new questions about the links of the Trump campaign with Russia.

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Bearish investors warn about turbulence, citing expensive actions, the expectation of higher rates and early signs of irrational exuberance.

But the latest rebound in the Dow could be a sign of things to come, bull accountant.

The road to Dow 30,000, says Rupkey, will be driven by successful components from Dow such as Boeing, UnitedHealth, 3M, Apple, McDonald's, Caterpillar and Home Depot, companies that have great earnings potential since the American economy gains momentum.

"We're not talking about" Bitcoin here, "says Rupkey, referring to the highly volatile and speculative digital currency that has recovered approximately 1,000% this year." This handful of companies that drive the rally this year are the heart of U.S. Betting against the economy is nonsense. "

Reaching 30,000 before the next bear market is" a pretty high order, but I think we can do it, "adds Chris Zaccarelli, chief investment officer at Charlotte, North Carolina, Independent Advisor Alliance.

The Dow would have that fell to 19,627 from its peak on Monday to enter a bear market.

Zaccarelli's optimism that the Dow can earn another 5,500 points before major problems is based on his belief that a recession – a typical killer of the bull market – it is far away The economic recovery that is gaining traction worldwide, he says, will extend the life of the current recovery in the United States, which began in June 2009. However, it will not rule out a strong setback along the way.

It's hard to be too negative about a market that has not yet faced the difficulties of rapidly rising interest rates or signs of global economic weakness, adds Bill Stone, strategist Chief Investment Officer of PNC Asset Management Group.

Stone adds that while stocks are costly on a historical basis, they remain attractive given the low interest rate environment.

And as illustrated by Monday's rally in the Dow, stocks could also gain momentum from corporate tax cuts. If companies pay less in taxes, they will not only increase their profits, but they will also release cash to acquire other companies, repurchase shares of the company, invest more in their businesses or return money to shareholders in the form of dividends. Credit Suisse estimates that a tax rate of 20% for companies would increase the total profits of the Standard & Poor's 500 stock index by 10% in 2018.

"Dow 30K is certainly possible before a bear market" , says Stone.

But not everyone on Wall Street believes that the Dow will rise so much.

Citing the 24% increase in the Dow this year, Joe Quinlan, chief market strategist at the US Trust in New York, says a break for stocks is not surprising.

It says that the Dow's highest point "before the end of this rally" will be around 26,500, or about 2000 points, or 8% more. The Dow Jones will encounter headwinds, says Quinlan, perhaps in the middle of next year, when growth abroad accelerates, causing the dollar's weakness to dissipate.

A stronger dollar represents a threat to Dow's large companies that do a lot of business abroad. This is because it makes their products more expensive when they are bought with weaker foreign currencies, which causes them to decrease. sales and profits.

At the moment, the most optimistic Rupkey says he sees little reason for actions to bathe.

a fall of 20% is hard to imagine, "he says.It will take more than a geopolitical shock, such as a missile attack from North Korea or a major trade disruption or a slowdown in China to send the Dow into a downward spiral , argues.

"I do not see a good old-fashioned 20% drop in the bear market unless the economy changes and now the risks of recession are minimal," says Rupkey.

"See you later," he adds. stock market can celebrate (up to) 25,000 or 30,000 or something else. "

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