Industrials have been my favorite sector for the fourth quarter of this year; my latest recommendati...
Dow 15,000: What it Will Take
02/28/2012 11:00 am EST
The blue chips could get there in the next two years, as worries over Europe's crisis and US election fade, says Barron's editor and president Ed Finn.
We're talking to Ed Finn about what's ahead for stocks, bonds, and the economy. So Ed, tell us what you're seeing.
OK. You feel fairly optimistic. As you know, the market moved up a lot in January of this year, trading now at about a 14 P/E. Over time, it's traded between ten and 20, so 14's not bad.
But the backdrop, we think, is good. We're looking at some exogenous factors. Europe, if it can continue to heal itself, that's going to help a lot, and also the US elections—however they come out—once they fall into place, businessmen will know what's coming, and hopefully they can start deploying businesses, creating jobs, etc.
For the economy, we see it growing very slowly this year. But once we get more certainty, we're hoping for more growth next year.
Let's talk a little about the equities market in particular. Do you have any forecasts for the S&P 500, for example?
We think that the S&P can move up as much as 20% over the next couple of years, which would be quite a bit.
A lot of people check in with the Dow. We think the Dow could move over 15,000, which would be a big psychological lift. As you know, we have been stuck in this trading range since the disaster of 2008. So if we get over these hurdles of Europe and the US elections, and the economy can power forward, we could see ourselves going over 15,000 in the Dow.
How about the fixed-income market?
Well, we think rates are going to be low. A lot of it depends on the election, but rates will remain low. The Fed has said they are going to remain low.
However, as you get economic activity picking up at 2% and 3%, you will see rates go up. So we're advising investors to stay short to the degree they're in the bond market and, in some cases, use dividend stocks as a substitute for bonds to get that income.
We were talking a moment ago about some of these exogenous events. One thing that people seem to make a big deal about are the so-called "black swan" events. How do you see anything like that playing out and perhaps affecting the markets?
It's very hard to predict the black swan event—that's the nature of a black swan event—but one thing that has changed in locked portfolios of wealthy people and not so wealthy people is they're putting some money in gold.
I'm not a lover of gold; however, 5% to 10% in your portfolio makes sense. It's not the perfect hedge against anything, but if you have a major calamity—you see Europe blow up or something like that—gold is probably going to rise in value.
Although I have gold in my portfolio, I hope it goes down, because that means the rest is probably going to go up.
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