This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why I'm Sticking By Dow 55,000

>>5 Big Stocks to Trade for Big Gains

So no, Dow 55,000 isn't a target that we'll see get taken out in 2014, but from a long-term view, the 55,000 level on the Dow isn't unrealistic even if it feels unattainable right now. We've hit similar market growth in both of the similar periods in years past.

From a technical standpoint, the broad market is breaking out of a long-term base that couldn't be much clearer. A year ago, when I first put that sky-high target on stock prices, we weren't at new highs yet. Now that indices have hit a new high water mark in 2013, we've got far more confirmation that we're coming up on another rally leg.

The extremely long-term chart of the Dow Jones Industrial Average below does a good job of showing off the similarities between the rallies that started in the 1940s, the 1980s, and today:

Each of the previous multi-decade consolidations in the Dow has taken on a very similar structure. And after breaking out through resistance, stock prices never looked back.

The Fundamental Factors

From a fundamental standpoint, a prolonged rally in stocks doesn't really make sense. After all, stocks have moved too far too fast from the 2009 bottom, right? Now they're looking expensive again.

But that's not exactly accurate.

As I write, the Dow sports a price-to-earnings ratio of 16.8. It was 16.2 in the last five years of the 1930s and just over 10 in the last five years of the 1970s. (For comparison, the high inflation of the 1970s warrants that P/E discount versus the 1930s and now.) The point is that transformational earnings growth isn't something that's visible at this stage in the cycle yet.

>>How to Avoid Big Losses During the Government Shutdown

There is a big difference today, however. In 2013, corporate profitability and cash holdings have hit all-time highs, which means that around 25% of major stock index value actually comes from cold hard cash.

We've never seen liquid assets make up so much of stocks' assets before -- and that means that P/E ratios are very much overstated. Stocks are actually much cheaper than they appear.

2 of 4

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,001.22 -38.27 -0.22%
S&P 500 1,988.40 -3.97 -0.20%
NASDAQ 4,538.5510 +6.4470 0.14%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs