Back in April 2016, when the Dow was 17,500, I made a call for Dow 20,000 by the end of 2016. At the time, no one on Wall Street was making this call and the majority of money managers were extremely bearish. The main point of this call was not to reach an exact number, it was to stress the overall direction of where I thought the market was heading last year. I’m pleased that I got it right, but now many people are asking me “Now What?”
Below is a chart of what we could possibly see over the next 1-2 years.
There are a few reasons why this could happen: 1) The technicals of the market keep improving and the rally is becoming more broad based. I am noticing more sectors participating and market internals are strong. 2) Sentiment remains fairly skittish. The “one foot out the door” mentality hasn’t stopped for years and this is keeping the dips shallow for now. Yes, some surveys are showing higher optimism recently, but keep in mind there’s a big difference between what people say and what they do. 3) Fundamentals and earnings can continue to improve, especially if we see GDP growth move from around 1.5% to 3% or higher. I discussed this last month on Neil Cavuto’s Fox Business show:
Will there be volatility? Of course! We will still see corrections, pullbacks and shakeouts along the way but my feeling is these dips will continue to be aggressively bought. Recently, I thought the Inauguration would be a “sell the news” event and we could see a pullback. The market had many excuses to selloff but the internals and technicals were just too strong. I covered my short positions early last week for a negligible loss, as the market corrected the past few weeks through time instead of through price. Since I am a growth manager, I continue to feel the Semiconductor sector will provide the best growth opportunities, but I am also pleased by the improving breadth in Financials and other sectors. Good luck trading!
I can be reached at: jfahmy@zorcapital.com