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Investors Suffering From a Lack of Bull Market Experience

Those who sit out of the final phase of this bull market may miss over half of the total move higher


The Dow closed higher again for its ninth straight day of gains. As on Tuesday, stocks started lower but reacted to favorable economic data and bargain hunters snapped up the early decliners and closed the major indices with small gains.

Stronger U.S. retail sales were the catalyst for the rally, rising 1.1% in February. Analysts had been forecasting a rise of just 0.5%. The gains were made despite higher taxes and higher gasoline prices.

At Wednesday’s close, the Dow Jones Industrial Average was up 5 points to 14,455, the S&P 500 rose 2 points to 1,555, and the Nasdaq was up 3 points at 3,245. The NYSE traded 584 million shares and the Nasdaq crossed 352 million. Advancers outpaced decliners on both major exchanges by 1.3-to-1.

With another new high in the Dow and the S&P 500 knocking on the door of a new all-time closing high at 1,565.15, and an absolute high of 1,576.09, we would expect to see lots of volume and the public fully involved in the stock market. Instead, fear among the public is rampant (just take a look at the responses to my bullish forecast), and the market just plods along like a programmed pack animal climbing the “hill of worry.” And this is good news — it means that the plodding will continue.

Nasdaq Chart
Click to Enlarge

In March 2000, the Nasdaq hit its all-time high at 5,132.52, and 13 years later, the index is 1,887 points, or 37%, lower than the old high. In March 2000, the price-to-earnings (P/E) ratio of all Nasdaq stocks was between 90 and 100 times earnings.

Today, the Nasdaq is trading at just 12.84 times last year’s actual earnings, 11.51 times 2013 earnings estimates, and 10.22 times 2014 estimates, according to Zacks Investment Research. In other words, if the Nasdaq doubled from the present level it would still be at just 25 times this year’s earnings estimates — a P/E ratio that is close to the average for the Nasdaq in the 10 years preceding 2000.

Conclusion: While my estimated target for the S&P 500 for this year is a modest 1,607, or 3.34% above Wednesday’s close, and University of Pennsylvania Professor Jeremy Siegel’s target of 1,980 is 27% higher, the Nasdaq has room left to soar even higher.

Current investors suffer from a lack of bull market experience — in short, they have never seen a full-fledged bull market, which in its final phase focuses on low-cap, speculative stocks and runs them through the roof. Yes, there can be and will be corrections, but if investors miss out on the fifth phase of a bull market, the phase when most profits are made, they may miss over half of the total move higher.

The wall of worry is still being built. Don’t let it rob you of future gains. Tomorrow, I’ll estimate my final target for the Dow and S&P 500.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

Article printed from InvestorPlace Media,

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