Editor's Note: Jon D. Markman writes a weekly column for CNBC on MSN Money that is republished here on TheStreet.com.

Now that the

Dow Jones Industrial Average

is a teenager, it's time to think about the day when it gets all grown up and can drive -- and even drink. For while 13,000 is an interesting number, it's really just a milestone on the way to much bigger things.

In the next four years, well before the 2012 presidential election, it would not surprise many professionals, including this one, if the famed market gauge advanced as much as 60% higher, to 21,000.

It's not quite as crazy as you might think, for it amounts to growth of only about 10% a year, once you account for the miracle of compounding.

In fact, Dow 21,000 is a modest number compared with most other meaningful measures of stock value on the planet, and the index has the means and motivation to get there.

Despite hitting all-time highs lately, the standard of large U.S. industrial companies' might is up a paltry 16% over the past seven years. That's virtually flat compared with the S&P Midcap 400 Index, a measure of medium-sized U.S. companies' value, which is up 100% over the same stretch, or the S&P Smallcap 600 Index, a measure of small U.S. companies' value, up 118%.

Meanwhile, a gauge of European large-company stocks called the Euro Stoxx 50 Index, which you can buy in the form of an exchange-traded fund with the ironic symbol FEZ, is up a whopping 165% since January 2000.

Lags Transports and Utilities

To add insult to injury, the Dow also has been badly bested by its two sisters, the Dow Jones Transportation Average, up 73% in the 2000s, and the Dow Jones Utilities Average, up 88%.

U.S. industrial companies have failed so far to gain traction in the 2000s exactly because investors' attention has been focused on small and medium-sized companies, as well as European, Asian and Latin American companies of all types.

So now that the Dow is attracting a little publicity this year, it's not time to call it a day for investing in it. It's time to consider what might happen if U.S. big-cap fever takes hold.

And folks, it is going to take hold -- make no mistake. Unless the world economic system runs off the rails, Dow 21,000 by 2012 is a lock. And anyone who says that ain't so lives in a Neverland, where kids never grow up, companies never innovate, consumers stop buying stuff and home sweet home is a bomb shelter.

If you don't believe stocks are cheap, then just ask real-money, whole-company buyers such as Rupert Murdoch, who just offered to pay 50% more than the market price for

Dow Jones

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, which just offered 20% above market for


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The problem, after all, hasn't been earnings growth in the U.S. -- far from it. Most of the stocks in the Dow actually have put up pretty good numbers, with earnings growth for most of the decade coming in at 7% to 12% annually. The problem has been threefold:

  • Investors became temporarily spellbound by the higher growth posted by small- and mid-cap companies and by foreign companies.
  • They grew less confident in the reliability of large companies' growth prospects, so they have compressed their price-earnings multiples.
  • And most important, the geniuses who create and manage the Dow Jones Industrial Average have not deemed it necessary to put more than a single energy stock in the index. Since Chevron (CVX) - Get Chevron Corporation Report was removed in 1999 to make room for Intel (INTC) - Get Intel Corporation (INTC) Report, integrated energy giant Exxon Mobil (XOM) - Get Exxon Mobil Corporation Report has been the solitary representative of the massive boom in commodities generally, and oil specifically, in the index. A large amount of the zoom higher in the S&P 400 and S&P 600 can be laid to the rise in small and medium-sized oil and gas explorers and drilling-services providers.

Back in Vogue

None of the above trends are fixed in place. The market is constantly in flux because it is really nothing more than a big popularity contest. Factors such as company size and economic sector traipse in and out of favor like hemlines and eye-shadow colors.

One of the most well-known swings historically is a seven-year cycle of preference between large-caps and small-caps. Because we're right at the end of a seven-year preference for smaller stocks, it shouldn't surprise anyone to see large-caps come into favor in a big way and remain in favor for quite some time.

If you just got started investing in a serious way in the past few years, you might not realize that there have been long periods in which small and medium-sized companies were not considered suitable investments. The year 1998 was a great example, when the S&P Small Cap 600 was down 2% while the Dow was up 17%.

Again in 1999, the S&P 600 was up 11%, but the Dow was up more than twice as much, with a 25% gain. At those times, you couldn't get investors to even think about small-caps. Pretty soon, sentiment completely reversed.

Since the latter part of last summer, I've been arguing that the market has started a new leg of a big bull market. It was kicked off by a single important event, and that was the end of an 18-month regime of interest rate increases by the

Federal Reserve

in August.

Once the Fed took its foot off the throats of borrowers with more accommodating monetary policy, investors felt a lot more comfortable with the potential for earnings to grow and price-earnings multiples to expand. With brief interruptions, the market has operated in full bull market mode since.

There are moments such as early March when you don't believe it, but until we get real evidence to the contrary, signs of a broadening of demand suggest that stocks should continue to rise. My research into cycles suggests there could be a nasty setback in August-October, but the market should recover all of its losses by the end of the year.

One near-horizon catalyst for higher prices will come from formerly bearish hedge fund managers who finally come to grips with the notion that their point of view is not panning out.

Even short-sellers care about quarterly returns, as that is how investors judge their performance; theirs are going to look bad to clients come the end of this June if the market doesn't go down big and stay that way.

Squeezing Out the Gains

My guess is that if the market does not indeed go down much between now and early June, the short-sellers are going to begin to panic.

They will cover their shorts by buying stocks, and bulls will make life very hard on them by "squeezing" the most heavily shorted stocks like there's no tomorrow. There's nothing quite like a good, old-fashioned short-squeeze to push the market much higher in a hurry, so keep an eye out for the possibility of a "melt-up" by summer.

To play along at home, you can just buy the exchange-traded fund covering the Dow, the

Diamonds Trust

(DIA) - Get SPDR Dow Jones Industrial Average ETF Trust Report

. You could supplement that with the top-rated stocks from the Dow 65 Composite, which brings the Dow Jones Transportation Index and Dow Jones Utilities Index into your mix.

At the time of publication, Markman was long Exxon Mobil and Hewlett-Packard, although positions may change at any time.

Jon D. Markman is editor of the independent investment newsletter The Daily Advantage. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback;

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