It took 120 years but Wednesday the Dow Jones industrial average hit that magical 20,000 mark. It’s the biggest milestone ever achieved by the venerable index. The obvious question is “What does this mean for investors?”
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The higher share prices brought on by this milestone immediately made some investors nervous. These are the investors who assume what goes up must come down and with it, their portfolio.
It might be worth acknowledging that as impressive as all this is, it has more to do with investor mood than it does with fortune-telling. There’s no empirical evidence that the Dow at 20,000 is predictive of anything. At least so say the experts.
Don’t Jump In
One piece of advice that does make sense is that now is probably not a great time to jump into the stock market in an aggressive fashion. Analysts will differ but Mark Arbeter, president of Arbeter Investments says he thinks the Dow will clear 20,000 this year by about 10% before a “potential market top.”
He goes on to indicate that the risky stocks, for now at least, are bank stocks like Goldman Sachs (NYSE:GSA) and JPMorgan Chase (NYSE:JPMC). Much of this has to do with their returns based on the “Trump bump” and ensuing higher interest rates.
Don’t Try To Time The Market
Likewise, trying to time the market is also not advisable according to many experts. Right now things seem to be fueled by optimism about the new administration’s pro-business stance and hopes of lower corporate taxes and deregulation.
Studies have made it clear jumping in and out of the market more likely than not will be a losing proposition versus a steadier long-term approach. That caution can be tempered somewhat by bulls who say now is a good time to try to ride the Dow, despite the possibility of a drop or two along the way.
As the Dow surges, February gold prices were down 1.2% at $1,199.30 a troy ounce on the Comex division of the New York Mercantile Exchange. This the result of investors locking in profits and rolling funds into equities.
Despite caution from experts, this trend is expected to continue according to Peter Hug, global trading director at Kitco Metals. Also down, the U.S. dollar index which hit a 6-week low Tuesday.
Favored Dow Stocks
Among Dow company stocks favored by Kiplinger there are 4 of note: Apple Inc. (NASDAQ:AAPLB), Merck & Co. Inc. (NYSE:MRKC), Pfizer Inc. (NYSE:PFEC) and Verizon (NYSE:VZC), each for a different reason.
With Apple it’s all about dividends and value. The company simply has more cash than most with earnings projections rising 9% in 2017. Merck is noted for not missing a quarterly dividend payment in more than 30 years. Recent dividend increases seem likely to continue. The company has 24 drugs in latter stage development, an excellent sign.
Pfizer, like Merck is a high-yield stock. Merck has invested in R&D in part to overcome investor fears that there won’t be enough new products to make up for drugs losing their patent status. Still the company has 94 products in development.
Verizon Communications has paid dividends since 2000. It has 9 straight years of dividend growth. In addition, the company is moving toward becoming a leader in mobile content and ads with the agreement to buy Yahoo Stock not found YHOO.