Monday, October 19, 2009

Dow 10,000 3.0 - What's Next?

After the Dow crossed 10,000 this week, the big question is where next . . . up, down or sideways? First, let me say that I really don't know. I feel like I've been wrong 90% of the time since this financial crisis started in 2008. However, I am happy to share my opinion.

Here are the three scenarios:

  1. Dow 10,000 is a peak. Many experts expect a correction soon, because the market indices have risen too far and too fast. After all, the market bottomed on March 9, 2009 and the Dow is up 52.7% as of October, 16, 2009. In addition, these experts believe the stock market has advance far ahead of the economic recovery, meaning there will soon be disappointments with the corporate earnings. Some even expect the market to go below the March, 2009 lows.

  2. Dow 10,000 is the center point. Since the economy is expected the to recover slowly, the stock market could oscillate around the 10,000 mark for years. This would similar to the 70s, when the Dow traded close to 1000, but not crossing it permanently until the 80s.

    In this type of market, investors in individual stocks will have a better chance of investment gains than those that invest in index funds.

  3. Dow 10,000 becomes a springboard. In this one, investors begin believing in the economy again, and worry about missing out on stock market gains. 10,000 becomes the new floor for the index and stock continue to advance, leading to the second bull market of this century.

    Unfortunately, this scenario will likely lead to another bubble and subsequent crash.
At this point, I think Scenario 3 is the most likely, and we are continuing to invest in individual stocks that I believe will benefit from an economic recovery. The worst case, I believe, will be Scenario 2, where the economy and the stock market is choppy for the next few years. In this case, I also believe certain individual stocks will benefit. However, it will be a market where trading may be a better strategy than buy and hold.

For more on Strategies and Plans check back every Monday for a new segment.

This is not financial or investment advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC


Manshu said...

Lot of noises about the correction and that alone makes me think it is not going to happen now.

financialfreedom said...

I certainly hope that it is scenario 3 that takes place.

Most people are almost fully vested back in the stock market again.