Markets Close at Record High: How Likely Is Dow 20,000?

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Both the Dow Jones Industrial Average and the S&P 500 closed at all time highs on Monday. The Dow climbed 0.68 percent to close at 16,695.47 after touching an intraday high of 16,704.84. The S&P 500 climbed 0.97 percent to 1,896.65 after touching an intraday high of 1,897.13. The Nasdaq, not to be forgotten, climbed 1.77 percent to 4,143.86, but is still down this year to date.

The S&P 500, though, is up 0.86 percent — anemic compared to 2013′s frenetic rally and reflective of a sometimes melancholy and always skeptical investor. By the last quarter of 2013 it was all but determined that 2014 would be underwhelming for equities, which is the narrative that appears to be panning out. It’s convenient to justify the price action by citing monetary policy, which, although tightening, is still highly  accomodative. The target federal funds rate, a benchmark against which market rates on interest are calibrated, remains at the zero bound.

Moreover, Federal Reserve Chair Janet Yellen expects the rate to stay low for the foreseeable future. “In particular,” she told the Congressional Joint Economic Committee in May, “we anticipate that even after employment and inflation are near mandate-consistent levels, economic and financial conditions may, for some time, warrant keeping the target federal funds rate below levels that the Committee views as normal in the longer run.”

Historically low interest rates during the recovery have been manna from heaven (the Fed) for equities, and the expectation that rates will remain low is a large part of current market sentiment. Investors, as always, seem eager to chase gains, but many appear skeptical of the foundation on which fresh market highs are built on and may just be interested in letting equities sit, as they generally have since the beginning of the year.

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