Dow Jones Industrial Average to Soar to 30,000 by March?
In just seven trading days, the Dow Jones Industrial Average went from 25,000 to 26,000. This was one of the fastest 1,000-point increases on the index. Looking at this, one could be wondering if the Dow could make a run toward 30,000.
You see, if this sort of buying behavior on the markets continues, we could see the Dow Jones Industrial Average soar to 30,000 by the end of February or early March.
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But, investors beware. Don’t get too complacent.
Now, more than ever, it’s important for investors to realize that valuations on the stock market are stretching to extremes.
Consider the cyclically adjusted price-to-earnings (CAPE) ratio. It’s essentially the price-to-earnings ratio adjusted for cyclicality and inflation. This ratio stands at 33.19. (Source: “Online Data Robert Shiller,” Yale University, last accessed January 16, 2018.)
This ratio is 98% above its historical average of around 16.80. The last time the CAPE ratio was this high, we were in the midst of the tech bubble.
Look at other stock market valuation ratios; they suggest the very same.
What’s Really Driving the Dow Jones Industrial Average Higher?
Understand that the Dow and other key stock indices aren’t going higher because the U.S. economy is showing stellar performance. The economy is not as great as one might think, and with interest rates moving higher, it could slow down severely.
Corporate growth is good, but not as good for key stock indices to soar like this.
Here’s the thing; key stock indices are soaring on hope and optimism.
Also, investors fear that the bonds market could face some headwinds, so stocks seem like better alternatives to them for now.
There’s really nothing more to it than that.
Stock Market Outlook: The Bigger They Are, The Harder They Fall
Dear reader, when I was in high school, I played football. I played as a defensive tackle.
There’s one game I remember to this day. It was with a team that had a solid winning streak and several players in that team were candidates to play college football. In simple words; they were bigger and better than my team.
Just before the game, I remember our coaches giving a speech about how to tackle and keeping strategy in mind.
In that speech, our coach said something that resonates with me when I look at the stock markets today. He said, “The bigger they are, the harder they fall.”
The stock market is getting bigger every day and is getting ahead of fundamentals. The Dow Jones Industrial Average, as I see it, is a great example of this.
If there’s one thing I have learned over the years, it’s that irrationality can go on for a while. So, the Dow Jones Industrial Average could go higher. It could even reach 30,000 on the back of this optimism.
But I question how hard the fall could be.
I will end with this; complacency never ends well. When investors are faced with reality after a long period of complacency, they panic and run for the exits. This is when we see a stock market crash.
