U.S. Asset Management

Dow 21,000 – What’s Next?

By David Cross, CPM®, CRPC®, CDFA®

By David Cross, CPM®, CRPC®, CDFA®

David.Cross@us-am.com

March 27, 2017

The U.S. Stock market has, let’s be honest here, soared since the election from just under 18,000 on November 8th, 2016 to over 21,000 on March 1st.  That’s a move of 16% in a very short period.

Dow Jones Industrial Average 1 year Chart
Dow Jones Industrial Average 1 year Chart

 

 

 

 

Naturally, when we see a protracted move that is counter to what most people expected, you get some well-deserved head scratching and pontificating that the market should go down a lot because it went up so fast.

Not so fast.  Just because it did the opposite of what many “experts” and talking heads thought, does not mean that the stock market will go down to whatever level they think it should be.  I deal in the world of brutal honesty.  Some of my friends and family will tell you that I am too frank with them but that characteristic has served me well in managing money.

Here are the facts:

Fact 1: If I use the average target price for each stock in the Dow Jones Industrial Average (there may be 10, 20, 30 or more firms that have a price target for each company) and multiply it by the weighting for each stock, I get a target price for the Dow Jones Industrial Average of 21,673.  That’s up 7% or so from here.  Not bad but not great.

Fact 2: The stock market in the US drops 5% or more usually 2 to 3 times each year.  Before March 21, we had not had a 1% drop in the market since October 11, 2016 – 109 trading days or over 5 months.

Fact 3: There is usually something worthwhile to buy out there.  Case in point.  While the U.S. stock market as measured by the Dow Jones Industrial Average is up from 12,354 10 years ago, to today at 20,668 or 67% (not including dividends) the Europe Far East & Australasia index (basically the rest of the developed world) has declined from 2,100 to 1,800 or -14%.

EAFE Index (Europe, Australasia, Far East) - The rest of the world outside the US
EAFE Index (Europe, Australasia, Far East) – The rest of the world outside the US

So, what is an investor to do?  Experience investors will likely hold off on committing much more money to the US until prices decline more or earnings catch up and probably accumulate more overseas stocks. After all, the expectations are very low for most international companies, prices are reasonable if not cheap and because their currency is cheaper and the dollar is strong, their products are cheaper in the US and the profits they bring back to their home country are higher because of the currency conversion.

A bit of advice for new and old investors – if the financial news drives you nuts sometimes…turn it off.  Crisis and bad news sell advertising time.  The more they can conflate a normal correction, the more likely you are to watch thus helping the networks make more money.  Get outside and enjoy the world- it’s way more interesting than the stock market!

To learn more, contact us at 678-894-0696

All views/opinions expressed in this article are solely those of the author and do not reflect the views/opinions held by Advisory Services Network LLC or Calton & Associates, Inc.

Advisory services offered though U.S. Asset Management, a member of Advisory Services Network, LLC.1040 Crowne Pt. Pkwy Suite 840 | Atlanta | GA | 30338 | 770.352.0449Securities offered through Calton & Assoc. Inc. Member FINRA/SIPC2701 N. Rocky Pt Drive | Tampa | FL | 33607  Advisory Services Network, LLC and Calton & Assoc. Inc., are separate and unrelated entities.

David Cross is a wealth advisor with U.S. Asset Management, a Registered Investment Advisor. He holds the designations of Certified Divorce Financial Analyst, Certified Retirement Planning Counselor and Certified Portfolio Manager.

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All views/opinions expressed in this article are solely those of the author and do not reflect the views/opinions held by Advisory Services Network LLC.  Advisory Services offered through U.S. Asset Management, a member of Advisory Services Network, LLC.

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U.S. Asset Management is a fiduciary advisor offering portfolio management and financial planning services. We help clients make better decisions with their money and assist with overseeing every aspect of their financial lives.  David Cross is a Certified Portfolio Manager, Certified Divorce Financial Analyst and Certified Retirement Planning Counselor.

U.S. Asset Management and Advisory Services Network, LLC do not provide tax advice.  The tax information contained herein is general and is not exhaustive by nature.  Federal and state laws are complex and constantly changing.  You should always consult your own legal or tax professional for information concerning your individual situation.

All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed.  Financial data changes rapidly.  All economic and performance data is historical and not indicative of future results.  This material is of a general nature and intended for educational purposes only.  This information does not constitute a recommendation or solicitation or offer of the purchase or sale of securities.   Indexes are unmanaged and do not incur management fees, costs, or expenses.  It is not possible to invest directly in an index.