Down goes the Dow

Big round numbers gather attention, and Dow 20,000 will certainly be a level people notice. It is also important that it comes right after the presidential election, and the common wisdom had it that a Trump victory would hurt equity prices. Hitting 20,000 shows how wrong that pessimistic take really was.--Nicholas Colas, chief market strategist at Convergex

Yes, big round numbers can be significant:

http://www.forecast-chart.com/historical-nikkei-225.html

For fools.....has nothing to do with cash flows or reasons to invest....

Igy

“With the very real prospect of corporate tax reform, it’s possible that earnings might come in even better than the current economic fundamentals would suggest, due to lower tax rates. Valuations might end up looking lower than they now seem, leaving more room for market gains.” -– Brad McMillan, Commonwealth Financial Network’s chief financial officer

Maserati,

You are saying in you are putting your 401K "back in" (to equities). Back in from where? What is (or was) your allocation before putting it all into U.S. equities?

I have more or less had a 60-40 or 70-30 allocation of equities to bonds/cash/and other. That is what I had before the election and that is what I'm basically sticking with. I'm not selling any stocks. But I am putting my dividends to cash instead of reinvesting. If equities keep going up and bonds keep edging down I will probably just rotate into more bonds.

For stocks I own outside retirement accounts, I have kind of backed myself into a corner with taxes. Earlier in the year I sold out of some positions for a loss and the tax deductions. But now, I'm sitting on sizable gains everywhere after this "Trump Rally". If I were to sell anything now I would be paying taxes at ordinary rates. Not that I would sell, but the tax situation makes it all the more clear that I will not sell until at least the new year.

The Dow industrials were set to open within striking distance of the psychologically important milestone of 20,000 on Wednesday, as the "Santa rally" that has pushed U.S. stocks to record highs continued.

Futures for the Dow Jones Industrial Average gained 10 points, or 0.1%, to 19,909, putting the benchmark on track to open near the 20,000 handle. On Tuesday, it closed at a record-high 19,974.62, thanks in part to gains for Goldman Sachs Group Inc. (GS) and Exxon Mobil Corp. (XOM) .

"The 20,000 Dow level has been seen as a somewhat magical target for a long time, and the prospect of the Dow reaching and closing over this level will provide headlines," said Rebecca O'Keeffe, head of investment at Interactive Investor, in a note.

"However, it also raises some important questions about the lofty levels of markets and their potentially complacent attitude towards potential downside risks," she added.

The Nasdaq Composite Index also eked out a record close on Tuesday, while the S&P 500 index rose 0.4% to close less than a point short of its all-time closing high.

On Wednesday, futures for the S&P 500 index slipped 1.25 point, or 0.1%, to 2,265.25, while those for the Nasdaq-100 index dropped 2 points to 4,954.

All three major U.S. stock indexes are on track for yearly gains of around 10% or more, with the biggest chunk of the rally coming in recent months. Analysts peg the rally to optimism that the Donald Trump administration will increase fiscal spending and potentially spur inflation.

That has fueled a rotation from bonds and into stocks, with inflows into equity funds since the election reaching $63 billion last week, according to a report from Bank of America Merrill Lynch. In comparison, stock-fund outflows tallied $151 billion between January and October.

"Bears have been carried out [in 2016], as a wave of market liquidity pounced on any downturn and squeezed the market higher," O'Keeffe said.

"However, as we head towards the new year, whether this confidence will remain justified in 2017 is a rather more moot point. Like this year, 2017 could bring about a range of potentially seismic events, with European elections and many of Donald Trump's campaign pledges high on a list of potential negative surprises," she added.

Maserati, here's my $0.02.

Wait. Right now the Dow is on the cusp of 20k and should reach that milestone any day now. I think once it does, there will be some profit taking and the Dow will retreat to a level below where it is now. Buy on the dip. The economy is humming along and it will soon after go back above 20k and then some.

Of course, like everyone else on here, I'm wrong at least half the time. Good luck.

Econ 101 wrote:

Of course, like everyone else on here, I'm wrong at least half the time. Good luck.

The two rules of forecasting.

Rule 1: For each forecast, there is an equal and opposite forecast.

Rule 2: Both of them are wrong.

-- Bill Berger (again)

K5 detector wrote:

Neither one posts for hours, if not days. Then 5 posts within minutes! Can there be any doubt?

.

A fool trying to convince himself he is right.

rate curve still c.the steepest it's been last 52 weeks - bullish

Big Dog Investments wrote:

I propose another DGTD prediction contest: PREDICT THE CORRECTION.

Here are the rules:

1) Give the exact date that the Dow will reach 10% below its high.

2) Your prediction must be made before the Dow has fallen 3% from its high.

Closest to the actual date wins with the winner receiving one genuine "attaboy" as prize.

Will it happen before the end of 2016? After the inauguration? Groundhog Day?

Let's hear what you think.

Our prediction pool remains unchanged:

Big: January 13, 2017

agip: March 4, 2017

Let me know if I missed anyone. It's not too late to join the fun. Step up and take a chance.

Current data (as of 12/20/16):

Dow high...19,987.63

Prediction goal...17,988.86

Cut off number...19,388.00 (make your prediction before Dow reaches this)

Greetings on a balmy Wednesday morning!

Igy--when you say that market indexes don't reflect reality, you kind of miss the point: it IS reality; it is its own reality

I don't consider buying at these levels to be an "investment", it is much more speculative than that. I should mention that the 401k is a minor part of our portfolio, and since it will be 20 years before we touch it, it will have time to weather the speculative market gyrations.

Ryan--it is now 100%MM, from 80/20, before which it was 60/40. As an aside, check out the new MM rules from the government, how unappealing.

I consider the 401k as I consider SS: it is speculative, in its entirety. The ultimate tax rate is speculative, and the ability to collect, and the collection schedule, is also speculative--not only is someone managing the money and no doubt commingling funds, if the SHTF these are almost the first source to which the government will turn for a needed capital levy.

That's why it's not large, but it is fun to play with. Right now it's with Vanguard, and another with Ameriprise (ugh).

More than a few people I have talked to see 20k as psychologically significant. There seem to be 2 schools of thought: 1) that 20k is the level of absurdity and when it finally reaches it reality will set in, there will be massive profit-taking, and a retreat will happen; and 2) that 20k (depending on volume and inflow level) is the level at which buy-in has been achieved (that is, buy-in to the entire program, not just to equities).

Of course as equities have risen, bonds have tanked. "Buy low, sell high", without more, would indicate bonds, but that's not the whole story--there is also this 20k DJIA level on the equity side, and bond quality on the bond side. I think it's relatively insane how much treatment equities receive vs bonds.

Ryan, I hear your tax woes. I know a guy making 5.5% on tax-free muni's he got years ago. Back then it looked retarded; now it looks pretty nice.

I'm going in the opposite direction. Had been almost 100% equities for nearly 20 years, but began pulling that back throughout this year since I'm 5 years out from retirement. Now down to 77%. Have a five year ladder of CDs with a year's worth of retirement income in each so I'm not sure I'll go much lower. I've got a lot of faith in trump and the businessmen he's surrounded himself with. We may see Dow 25000 before he's done.

Maserati,

"Igy--when you say that market indexes don't reflect reality, you kind of miss the point: it IS reality; it is its own reality."

I am assuming, you agree that when the Dow was at 6,469 in March of 2009, or even 15,450 last January, it was reality. So I prefer buying at a lower reality.

Igy

Then why didn't you?

Ghost of Igloi wrote:

Maserati,

"Igy--when you say that market indexes don't reflect reality, you kind of miss the point: it IS reality; it is its own reality."

I am assuming, you agree that when the Dow was at 6,469 in March of 2009, or even 15,450 last January, it was reality. So I prefer buying at a lower reality.

Igy

lol yes, me too, which is why I'm considering only the 401k.

Regarding the "this time it's different" concept...never before have I been so wary of the markets, as I am now, and as I have been for the last year or two. I never had any problem with them, and bought in and out with little worry.

Markets used to be manipulated by a few market makers and fakers, and that was it, and over a broad spectrum and over time things seemed to even out...but no longer. Market activities these days seem more insidious. They seem to have been well-controlled, but in one sense that is a terrible weakness--for if the control mechanisms ever fail for whatever reason, all hell will break loose.

To my mind it's kind of like being in a submersible...if it's leaky enough it will fill up fast enough that you won't be able to go very deep, as the rate at which you can pump out water will be exceeded at some point due to increasing pressure and therefore increased flow. In a market sense, we have learned to not only pump very quickly, but to quickly and nimbly plug leaks very soon after they appear.

This has permitted us to take the submersible to ever-increasing pressure regimes...however, if one of our control mechanisms ever fails, the end will be catastrophic as the overwhelming pressure crushes the vessel...unlike a less-precise operation that would only permit operation in a much lower pressure environment, where failure would not be catastrophic.

So I worry about the failure of the control mechanisms. I do believe that we could see 23k relatively soon if they remain in place and function well, and things like limit-down's, power failures, and updates continue to play a critical role. If the Fed really starts buying (which is another control mechanism), then the sky is the limit.

Yes there are market forces both up and down, but the situation with public accounts and unfunded liabilities is IMO now the controlling force. This time, it IS different, if for no reason other than the demographic realities. And the agencies responsible for those accounts and liabilities are the same ones that run the dominant control systems.

The only thing that could bring it down, because investiture is internationally diverse, is sabotage, and that sabotage would have to be somewhat sophisticated in order to endure. Disabling failsafes comes to mind as one way to do it, but there are overlapping layers of protection.

What a ride, though. I re-iterate that FOR ME, this time is different. Maybe it's in part because I'm getting older, but I really do think that there has been a fundamental change to market operations, not just in my perceptions thereof. Algo's are powerful, quick, and most of all, predictable.

What is happening in bonds is very interesting. From a "fundamental" perspective, it's the opposite of what is happening in equities: there actually seems to be some "sense" in the bond market. The difference, of course, is that many are short-term. Look for the same control systems to apply to the long-term bond market as are applied to equities.

My 2 cents.

Ben There wrote:

Then why didn't you?

Did, both times.

No you didn't. Telling us about it months after the fact is an obvious lie.

Big Dog Investments wrote:

Big Dog Investments wrote:

I propose another DGTD prediction contest: PREDICT THE CORRECTION.

Here are the rules:

1) Give the exact date that the Dow will reach 10% below its high.

2) Your prediction must be made before the Dow has fallen 3% from its high.

Closest to the actual date wins with the winner receiving one genuine "attaboy" as prize.

Will it happen before the end of 2016? After the inauguration? Groundhog Day?

Let's hear what you think.

Our prediction pool remains unchanged:

Big: January 13, 2017

agip: March 4, 2017

Let me know if I missed anyone. It's not too late to join the fun. Step up and take a chance.

Current data (as of 12/20/16):

Dow high...19,987.63

Prediction goal...17,988.86

Cut off number...19,388.00 (make your prediction before Dow reaches this)

I'll split the difference. Put me down for Feb 8, 2017.

Hey, agip, March 4 is a Saturday.

Maserati,

OK, I get that. You summarized in your unique and interesting way (a compliment), what the consensus view is. The non-consensus view, which you alluded to, a frail and fundamentally flawed system. Of course, one can take the cynics view, that the market will be allowed to float up to bail out the "frail and fundamentally flawed system." One only has to look at the private, public pension system, and the Fed balance sheet to see the enormity of it all. I'll take the other side of the trade, where mean reversion in the markets, exposes the phony economy and our inability to adequately plan for the future. In my view we face a regime of rising interest rates and falling stocks, the exact opposite of what we experienced most of this cycle. A truly devilish scenario, where the only place to hide is in the lowest yielding investments. Everything else gets whacked.

Igy