Why Dow 20,000 may be closer than you think

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By Lawrence Lewitinn | Talking Numbers – 4 hours ago


Can the Dow Jones Industrial Average hit 20,000 any time soon?

That number is 28.7% away from yesterday’s close of 15,542.24.

To put it in perspective, the Dow rose roughly 28% over the last 20 months.

Of course, things have been unique since November 2011. For one, interest rates fell to historic lows by 2012, though they’re now higher than they’ve been in two years.

This is related to the fact that there are now a lot more dollars in the economy thanks to the Federal Reserve Bank’s policy of quantitative easing. This program has US central bank purchasing mortgage and government bonds, thereby pushing up bond prices and lowering interest rates. Currently, the Fed adds $85 billion per month in liquidity to the financial markets though its chairman, Ben Bernanke, has hinted it will start tapering sometime towards the end of this year if the economy shows signs of improving. More dollars in the economy can be a factor in raising prices on everything, stocks included.

Meanwhile, corporate earnings are growing in the S&P 500, an index highly correlated to the Dow Jones Industrial Average. According to stats compiled by Thomson Reuters I/B/E/S, the S&P 500’s actual earnings growth rate for the second quarter is 8.2%. All things being equal, higher earnings growth leads to higher stock valuations.

So, do the fundamentals and technicals point to Dow 20,000 any time soon? CNBC contributors Steve Cortes, Founder of Veracruz TJM, and Richard Ross, Global Technical Strategist at Auerbach Grayson, take opposing viewpoints.

Watch the video above to find out why Dow 20,000 is not as crazy as you might think.

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http://finance.yahoo.com/blogs/t ... hink-095832726.html

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