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Dow 20K by 2022: ‘The World Is Not Going to End Tomorrow,’ Strategist Says

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There are several key events happening this week that could make or break the markets. The Federal Reserve's policy-making arm meets Tuesday and Wednesday and an announcement (or hint) of more stimulus, or quantitative easing, could lift major indexes higher. Investors are widely expecting Fed officials to take more action to boost the sluggish economy. The European Central Bank and the Bank of England will also publish their decisions on interest rates and ECB President Mario Draghi will be expected to give more clarity to statements he made last week when he said the central bank is prepared to do "whatever it takes to preserve the euro zone."

More corporate earnings reports, North American July auto sales, the S&P/Case-Shiller Home Price Index and same-store retail sales will also give investors additional data to chew this week and could determine how the markets will end the month. The Dow Jones Industrial Average (DJI) and S&P 500 Index (GSPC) both ended last week in positive territory after a shaky trading start and each index is up more than 1.5 percent in July. Year to date, the Dow has gained 7.02 percent and the S&P has risen 10.21 percent.

With six months left until the end of the year, there are still significant headwinds that could reverse the markets' upward trajectory. A resolution to the 3-year European debt crisis may not happen until next year and the looming fiscal cliff in the U.S. and the November presidential election have investors and corporations on edge. Money from around the globe has poured into U.S. Treasuries, cementing the U.S. as a safe-haven but sending Treasury yields to all-time lows.

Investors, many of who are still reluctant to buy stocks after the 2008 financial crisis, have become risk-averse and continue to choose cash and bonds over equities. This behavior will cause many investors to miss out on big returns that will be coming over the next decade, according to Bernstein Global Wealth Management's Seth Masters.

"We're in the middle of a huge safety bubble where people are so interested in short-term safety that they're eager to buy 10-year government bonds that yield 1.5 percent in the U.S. and that is extraordinarily strange and unusual," Masters says in the accompanying video. "What's happened is that people have become so fearful in the present about the risk of loss from equities but they're forgetting about the other risk of investing: they might run out of money."

Masters says market volatility will persist in the near future but it won't be enough stop the Dow from hitting 20,000 in 10 years (or the S&P 500 touching 2,000 in the same time frame), which Masters argues is not an overly optimistic position. He projects global and U.S. stock markets will return about 8 percent over the next decade, a conservative rate but one that would still push the Dow above 20,000.

Masters emphasizes that his projections are well below the long-term average for U.S. and global equities. As for valuations, Masters says stocks are "very very cheap" relative to long-term and current interest rates and therefore "it doesn't take that much for stocks to deliver good returns."

Masters tells his clients to tune out the financial and economic headlines and resist the urge to pour all their money into bonds.

"The key problem today is that fear has become so preeminent that it's trumping really common sense — and the common sense is the world is not going to end tomorrow," he says.

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