Stock market veterans will tell you that the market tends to do the opposite of what is suggested by a cover story on a widely circulated business news publication.Famous examples include BusinessWeek’s 1971 cover story “The Death of Equities” and the Financial Times’ similar story “The Death of Equities?” Indeed, both stories were followed by big rallies.
Today, Barron’s goes out on a limb again with a bullish cover story titled “Almost There” in reference to the Dow Jones Industrial Average being 6 per cent from an all-time high.
Here’s a sample of what author Andrew Bary says:
The Dow Industrials are more reasonable now than at the 2007 peak, when the index traded for 16 times the then-current 2008 earnings estimates. That projection turned out to be way too high, as did even more bullish 2009 projections at that time, as the financial crisis and recession savaged earnings.
It’s bullish that U.S. stocks have done well without much participation by retail investors, who continue to prefer bonds despite historically low rates on Treasuries, mortgage securities, high-grade corporate debt, and junk bonds. The average junk-bond yield of 6% is only three percentage points higher than dividend yields on scores of high-quality, dividend-paying stocks. Junk bonds probably can’t go much higher, although they could go a lot lower. If retail investors ever warm to stocks, the Dow could go much higher.
Bary’s story includes quotes from Jim Paulsen of Wells capital Management and Blackstone’s Byron Wien who both point to a stronger-than-expected U.S. economy.
“With a bevy of reasonably priced stocks, the Dow industrials look poised to set a new record, if not this year then next, and investors can get a nice 2%-plus yield along the way,” writes Bary.
Read the whole story at Barrons.com.