Is the DOW at 20,000 a good thing? .. Likely not for new investors

It makes great headlines, but there are a few things to consider before you get too excited.

  • The DOW is an average of 30 company’s share price. Thus, Goldman Sachs with a share price of $256 has 2x the impact on the average as Apple, even though Apple’s market cap is 6x that of GS.
  • It has only 30 companies and does not include utilities, transport or real estate.
  • Dividend yields are only about 2.5% — near historic lows.
  • Stocks are trading at 29x inflation adjusted profit multiples,compared to the long term average of 16x.
  • The DOW hit 10,000 with much celebration in 1999, only to take 11 years to recover again to 10,000 in 2010.
  • Markets don’t like uncertainty, but the market does not appear to know how to price in the Trump effect.
  • I am excited about more companies getting incentives to manufacture in the US, but these things take time to ramp up, factories, skills etc.
  • The negative effect on corporate profits will be immediate should there be a trade war (skirmishes are likely soon with China and NAFTA)

Be careful. It is a great time to take you chips off the table, hold the cash and invest in the in inevitable dip. The market euphoria is starting to look like a familiar party that alway seems to catch us by surprise.

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