HELLO message board--Maybe this explains why we do not have a correction yet--comments appreciated !!
Barron's:Overwhelming Odds Favor Dow 17,000 Year End Target And 18,500 In 2014
Barron's Cover | SATURDAY, MAY 11, 2013
We Were Right!
By GENE EPSTEIN
Barron's jubilantly joins the hoopla over Dow 15,000, having predicted it early last year. But the hoopla is haunted by one surprising fact: In inflation-adjusted terms, the blue-chip average is still well below its record high of Jan. 14, 2000.
Social Security checks are indexed to the consumer-price index, so why not the stock market, especially since stock returns often supplement pension money? The Dow's nominal close on Jan. 14, 2000, was 11,723, but given that the CPI has risen more than 37% since, the Dow's inflation-adjusted close that January comes to 16,088. That peak was challenged, but not bested, on Oct. 9, 2007, when the average hit its last nominal high—which in 2013 dollars, would be 15,732.
Ironically, that's a bullish indicator. Over the long run, the stock market beats inflation by a substantial margin, especially when you include reinvested dividends. So if past is prologue, this still laggard stock market should lead to above-average performance.
Over what period? Lower-than-average returns over five years are generally followed by higher-than-average over the following two years. And in both real and nominal terms, the five-year performance of the market is well below average, even with dividends reinvested.
Accordingly, the Dow has about four chances in five of being flat or higher over the next two years. It also has a 50-50 chance of vaulting above 18,500 over the same time-frame. Unless CPI inflation rises into the double-digits, the Dow would then be at record highs in real terms