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Dow 20,000 by 2020, Beware “Safety Bubble”: Bernstein’s Seth Masters

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Dow 20,000 by 2020, Beware “Safety Bubble”: Bernstein’s Seth Masters

The Dow Jones Industrial Average (DJI) is on track to extend its Tuesday winning streak to 18: Blue chips were up 93 points to 15,185 in recent trading.

Seth Masters, chief investment officer at Bernstein Global Wealth Management, which has over $450 billion in assets under management, reiterates his call that the Dow would hit 20,000 by the end of this decade. Masters first made the case for Dow 20,000 last July during an interview with The Daily Ticker. Investors and market watchers are no longer dismissing these optimistic projections: the Dow has already gained more than 17% in less than 12 months and needs to rise another 32% to hit the 20,000 target. A 32% increase seems downright reasonable over a seven-year span (barring no major market crash).

Related: Dow 20,000 Is Coming in 2014 or early 2015: James Altucher

Markets are breaking their record highs at an accelerated pace yet many retail investors are still sitting on the sidelines. As Masters points out in a recent client note, stock markets “have doubled from their early 2009 bottoms…and an array of macroeconomic issues and the lingering trauma of 2008 have continued to spur investor flight to assets that appear to be ‘safe.’”

Investors can have more faith in this bull market, Master says, because the "fundamentals underpinning this rally are very good."

Even profit margins will stay elevated for a while because modest economic growth has made companies “remarkably reticent to expand," Masters argues. As the economy picks up more steam, corporate America may be more inclined to become “over exuberant and over invested” again – two factors that “destroy profit margins,” according to Masters. But he sees no evidence that's about to happen anytime soon.

Meanwhile, Masters says individuals have also become too focused on the perceived safety of defensive groups like utilities, telecom and consumer staples, which he now believes have become crowded trades and potentially very risky investments based on historical valuations.

Related: Why Your Grandmother’s Portfolio Is Beating the Pros’

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