Markets in a Nutshell
February 13, 2012
The five week winning streak ended
for the stock market ended last week as the Dow dropped 0.5%, the S&P
500 0.2% and the Nasdaq 0.06%. Despite the pullback stocks show healthy
gains for the year with the Dow up 4.8%, the s&p 500 up 6.8% and the Nasdaq
11.5%. Bonds show small gains for 2012 (Barclay's Aggregate bond index
up 0.6%) and gold is up 10.0% for the year.
“Even by conservative measures, the Dow Jones Industrials could top
15,000 in two years. Dow 17,000 is a 50-50 bet.” So writes Gene Epstein
in a cover story from Barron’s (2/13/12). According to Epstein there are a
number of factors that will push the stock market significantly higher in
the next 2 years (Dow 15,000 would be a 17% move up from current levels
while Dow 17,000 would be a 32% gain). Factors include double digit
profits growth from corporate America and something called “reversion to the
mean” investment theory (“mean theory”). Read on…
Mean theory states that lower than average returns over past time periods
point to higher than average returns over future periods. And since the
last 5 and 10 years (through 12/31/11) have shown average annual
stock returns of 0.78% and 4.44%, the next 5-10 years could show greater
than average returns. While we are believers in long term stock market
gains (those of you who attended our seminar in November last year may
remember we talked about Dow 40,000 by 2030), we also see rocky times
ahead over the next 3-5 years.