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The Dow could reach 46,618 in 5 years: trader

By Alan Valdes, director of floor operations at Silverbear

As the sun started to raise over Manhattan this morning, the markets appeared on track for another record. Yesterday’s close in the Dow (^DJI) (+297.84; close 19,549.52, the S&P 500 (^GSPC) (+29.12; close 2,241.35), and Nasdaq (^IXIC) (+60.76; close 5,393.76) cap 14 days of reaction to what is becoming known as “Trumponomics.”

The Dow is now up 1200 points since the election. After being warned it would plunge 1000 points should Trump be elected, indeed we watched the market drop 900 points in futures trading on election night. However, stocks quickly reversed when it be came clear Trump would not only win, but also that Republicans were keeping control of both the House and Senate. This gives Trump a clear path to implement his tax cut plans, reduce regulations and repatriate trillions of overseas corporate money.

The $2 trillion in value add to global markets since the election could continue into the spring. However, I would not be surprised to see a pause as we close in on that psychological Dow 20,000—just as we saw with Dow 5000, 10,000 and 15,000. Traders always take some profits at these metrics.

Also, this year’s march to record highs comes at the end of the year. You will start to see a lot of “tax rolls” as investors adjust their portfolios to take advantage of both gains and losses for tax purposes. But soon after the ball falls in Time Square, new money will be put to work in the markets.

The question I am always asked is, “How high will it go?” I wish I knew. If I did, I would be writing this from Palm Beach. To be sure, 2017 will be filled with a lot of fear and turbulence. There will be corrections, which, barring some major event (like Italy and/or France leaving the EU), will be shallow and short in length. Also there’s over $9 trillion sitting in US consumer bank accounts (making little or no interest), which is an all-time record for private bank accounts. That money presumably will start to enter the markets as well.

My dear friend Mike Williams at Genesisinvestor.com uses the analogy of the early Reagan years. In percentage terms, the Reagan rally lifted the market 225%. If the Trump rally reaches those same lofty gains, we could see the Dow at 46,618 in five years. However—and I’m showing my age here—I was on the floor when the Dow hit 1000. So my point is, “You never know.”

One thing that didn’t get much play yesterday and seemed to get lost in all the hype over the Dow and S&P: The transports (^DJT) reached a new high—the first time in two years. Transports are a leading forward-looking indicator that traders keep a close eye on that alone could propel markets to higher highs.

Next week, we have the Fed meeting. The shock to the market will be if they don’t raise rates. All signs point to a 0.25% raise in rates. Traders will look for any indication of next year’s time schedule for increases. My guess is we could see two hikes, as inflation will surely pick up. Inflation combined with a growing economy is not really a problem and will be welcome after eight years of GDP growth below 3%.

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