Tae,
52K is the max, and if we have good leadership in government and avoid serious wars or natural disasters, chances are good we will see a rally for the next 2 to 8 years that will make the noninvestors weep.
Here's how easy it can happen. The S&P 500 cumulative annual earnings is in the $50 per year range or so, and with the index at 1350, we have a p/e of 27. As the world recovers and the developed countries continue impressive GDP growth of 3 to 5%, and as companies continue to improve profitability through the use of technology and the internet, and as corporate tax rates continue to decline, profits could and should double from current levels 4 years out.
Bond yields are at 5.8 now, and the stock market is comfortable with that. In the coming years, U.S. rates should continue their downward trend to come into line with the inflation + 3% historical norm. You get a rate down near 4%, which is entirely possible with a balanced budget and low inflation (especially after this Japanese repatriation ends), this implies a 25 P/E for the bond market. With profits growing at somewhere between 15 to 20 % for the next 3 or 4 years for the S&P 500, the whole index will get a generous growth stock like P/E. Versus a 25 P/E on bonds with a 4% growth rate, 40 P/E with 20% growth would be a reasonable and fair number. 40 X S&P's $100 per share cumulative earnings would be SPX 4000, or triple its current level. Let that continue a couple more years, and viola, there'e your Dow 50K.
It's not far fetched at all IMO.
BK |
