Amid Optimism, Dow Tops 20,000


Helped by strength in shares of economically sensitive companies, the Dow Industrials and S&P 500 Index rallied to all-time highs. The Dow Transports moved within striking distance of their December all-time high of 9,421.08.

While the Dow Theory is already squarely in the bullish camp, a close above 9,421.08 would bode well for the near term. Our Focus List and Buy List have 100% in stocks, while our Long-Term Buy List has 94%.

Growth estimates rising

President Trump has dominated the headlines in his first days in office. He has made several business-friendly decisions, including signing executive orders to reduce the regulatory burden on manufacturers and clearing the way for the construction of two oil pipelines.

Trump will need help from Congress to enact the bulk of his agenda, including tax reform and infrastructure spending. While most expect setbacks and detours along the way, there's little doubt that investors are counting on policy changes in Washington.

Even the International Monetary Fund expects spending increases and tax cuts will bolster the U.S. economy, recently lifting its forecasts for U.S. growth in gross domestic product to 2.3% for 2017 and 2.5% for 2018.

Still, attributing every move in the stock market to Trump is a mistake.

So far, earnings reports for the December quarter have been mildly encouraging. The percentage of companies beating expectations is roughly in line with long-term norms, suggesting earnings for the S&P 500 Index should be up 6% to 8% from year-earlier levels. Consensus estimates for year-ahead earnings are rising again, reflecting improving expectations for the U.S. and overseas economies.

Both in the U.S. and abroad, economic reports continue to surpass consensus expectations, pushing the Citigroup Economic Surprise Index to fresh multiyear highs. Citing improvement in Europe, China, and developing nations, the IMF expects global growth of 3.4% in 2017 and 3.6% in 2018, up from 3.1% in 2016.

The improving outlook has been reflected in the action of cyclical stocks, which have led the market so far this year. In fact, the S&P 1500 materials, consumer-discretionary, and technology sector indexes are each up more than 4% in 2017.


For now, subscribers should maintain nearly fully invested portfolios while looking for reasonably valued growers. Top picks include Lam Research ($117; LRCX) and Lear ($147; LEA).

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