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Strategies & Market Trends : Technology Stocks & Market Talk With Don Wolanchuk -- Ignore unavailable to you. Want to Upgrade?

To: da_cheif™ who wrote (7180)	1/30/2003 3:47:35 PM
From: Chip McVickar	Respond to of 207524

Rule of seven says Dow will hit 16 000 next EARNINGS PREDICTIONS By LEIGH ROBERTS EVER heard of the rule of seven? According to this mathematical rule, the value of an item growing at 7% a year will double over 10 years because of the compounding effect. Financial pundits are touting the rule of seven to rationalise the power surge behind the Dow Jones index, which recently surpassed the 10 000 mark. Tom Galvin, chief equity strategist of New York stockbroking firm Donaldson, Lufkin & Jenrette, explains in a recent newsletter that share prices over long periods of time ultimately reflect the earnings growth of companies (together with the inflation-adjusted purchasing power of investors). The earnings growth in both the Dow and the S&P 500 index has been roughly 7% a year over the past 50 years - essentially doubling every 10 years. Assuming share prices reflect underlying earnings power, the Dow should also have doubled every 10 years. Looking at nice round numbers, the Dow first hit the 500 level in 1956 and then reached 1 000 in 1966, 10 years later. In keeping with the rule of seven, the Dow should have hit 2 000 in 1976, 4 000 in 1986 and 8 000 in 1996, the next stop being 16 000 in 2006. Therefore the 10 000 level is just about on schedule. If the Dow is adjusted for inflation, says Galvin, the 1 000 mark reached in 1966 was not again seen until September 1995. In real terms then, the current bull market is fairly youthful at a mere 42 months old. Applying the rule of seven and assuming inflation remains benign, the Dow should reach 16 000 by 2006. With bond yields below 7% and earnings now in a recovery phase, stocks should be the preferred financial asset. The best is yet to come, says Galvin. btimes.co.za