Dow hits a new record – and it can keep climbing

The Dow hit a new record Friday. Despite widespread skepticism, there are reasons to think the stock market can continue climbing.

On Friday, the Dow stock market index hit a new record high, as fears eased somewhat over tension in Ukraine and investors took heart from Fed Chair Janet Yellen's comforting words Thursday about a strengthening economy.

The Dow closed at 16,583.34, while the Standard & Poor's 500 index climbed  2.85 points to 1,878.48 and the Nasdaq added 20.37 points to reach 4,071.87. But the Dow's new record was hardly convincing. It beat its April 30 record by less than 3 points, leaving some investors wondering: How long can the market continue climbing?

Longer than many believe,  answers Fred Dickson, chief investment strategist at D.A. Davidson, a financial services firm based in Great Falls, Mont.  Last weekend, the Davidson Investment Institute had its semiannual meeting that included presentations by some top investment strategists.

“The range of sentiment from a top-flight panel of nationally recognized strategists was from moderately bullish to extremely bullish,” says Mr. Dickson who met with me in New York.

Some of the reasons for the optimism are: The economy appears to be getting back to at least the low-end of normal growth and many investors are sitting on cash, which is not doing nearly as well as the stock market. Over the past 12 months, the Dow is up about 1,500 points or about 10 percent while the return on cash is less than a quarter of a percent.

Dickson himself is “cautiously optimistic.”

He believes the stock market is in the last part of its bull market run. In terms of a clock, the market is at about 11 p.m. with midnight being the time the market begins a serious correction that might lead to a contraction.

Dickson, who travels throughout the Pacific Northwest to meet with clients, says most people want to know how long it takes to get to midnight. He tells them it can be a considerable amount of time, even years. “It could even be after the election in 2016,” he says.

He keeps a checklist of a dozen indicators that might give him some warning about when midnight is near. So far, five of the indicators are green, which means no sign of a problem. Four of the indicators are purple indicating that there are troubling signs that could appear in 2014. (Gulp, one of those indicators is a stock market bubble.)

And, three of the indicators have already turned red – not a good sign. The three red signs are: a slowing rate of increase for earnings on a year-over-year basis; a slowdown in emerging market economies; and acceleration of merger and acquisition activity and share buybacks.  To Dickson the last item indicates companies can’t figure out a better use for their cash in their own business.

Despite the fact that 7 of 12 indicators are either red or getting close to turning red, Dickson thinks the market will be a good place to be this year.  He predicts the Dow will end the year at 17300 and the Standard & Poor’s will finish at 1950. That’s about a 4 percent gain for either average from current levels.

However, one of the wild cards that is not a part of checklist is some geo-political event that has a negative impact on the economy – such as renewed East-West tension in the Ukraine.

–  Ron Scherer is a former business writer for the Monitor and coauthor of “Big Picture Economics: How to Navigate the Global Economy.”