Two Views on the Dow: Stocks "the last-place finishers in an ugly contest"

Dow 20,000 is pretty likely: WSJ Editor-in-Chief Gerard Baker

Excerpt:

Yahoo Finance asked Baker what his predictions were for the market in the future, Dow 20,000 perhaps? His response: “Will the Dow hit 20,000? I’d say that’s probably pretty likely. I’m not going to say when that will happen." But he thinks it will happen "as long as the right circumstances are in place for the U.S., such as strong and deep capital markets, entrepreneurial spirit and a relatively low tax environment.”

Dow 17,000 is on the wrong side of history

Excerpt:

Today’s bull market is the fourth biggest since the 1929 crash after stocks have nearly tripled since the financial-crisis low set in early 2009. But more than any modern bull market, this one stands alone in that it’s squarely out of step with economic growth. It’s being driven higher by just a few wealthy participants and traders who have tacitly, perhaps even unknowingly, agreed to drive prices higher. The main reason for that is two-fold. First, low interest rates have made other investments unattractive. The 10-year U.S. Treasury is yielding only 2.58%. Inflation is running at an annual rate of 2%. That makes corporate bonds, certificates of deposit (which yield less than T-bills) and other fixed-income products largely a losing proposition. Those who have been buying bonds have been doing so for safety. Second, the investing public isn’t really buying stocks. A study by the Pew Research Center, published in May, found stock ownership by households is shrinking, at 45%, down from more than 65% in 2002. Even with the Dow Jones Industrial Average DJIA reaching the 17,000 milestone, investors are leaving stock mutual funds, not buying them. This series of circumstances is unique. Unlike central bankers’ response to the Great Depression, the Federal Reserve has embraced Keynesian economics and flooded the economy with dollars on a scale never seen before. The Fed’s balance sheet has more than quadrupled to $4.3 trillion since 2008. In short, stocks have become more attractive not because of a surging economy or strengthening corporate profits, but because they are the last-place finishers in an ugly contest. That’s a significant difference with boom markets of the past.

Comment: The second article has it right