Last month, Brian Belski, the Minnesota-bred chief investment strategist at BMO Financial Group in New York, rocked the investment world when he predicted the Dow Jones industrial average, now about 17,000, could hit 44,000 within 10 years, a compound annual growth rate of about 10 percent.
Shades of the infamous investment book, "Dow 36,000," which came out in 2000, just as the market tanked and then went nowhere for 10 years in what's been dubbed "The Lost Decade."
"It's not beyond the historical scope of the market," Belski said in an interview last week. "Bulls are bred from lost decades. We had that. There remains a tremendous amount of fear and apathy with respect to equity investment. It's been elongated by the strong bond market. Mom and Pop in Willmar need to lose money in bonds before they run to stocks, our investment class of choice for the next 10 to 15 years. And I believe we are in the last great bull market of my life."
Belski, 48, has been one of the more prescient market analysts since the Great Recession, arguing that American industries — lean, productive and laden with cash — were the best long-term bet in the world. And last week the Dow Jones industrial average topped 17,000 for the first time and the Standard & Poor's 500 also hit an all-time high of 1,985.44.
Last week we sought a six-month market checkup from our Star Tribune Investors' Roundtable experts, including Belski, to seek how they think the rest of the year will play out.
Q: What is your impression of the first half of 2014?
Brian Belski: Not surprising to us. We anticipated the strength last December.
Erica Bergsland of Advantus Capital Management: I am concerned about complacency across markets, particularly in light of weak growth and geopolitical threats in Iraq and Ukraine. Stocks shrugged off very disappointing economic data. Harsh weather played a role … and we expect better growth in the remainder of the year. Full-year growth is not likely to be as robust as I expected at the end of last year.
Jim Paulsen of Wells Capital Management: I have thought since last year-end that the stock market would initially be pushed higher toward the 2,000-ish level during the first part of this year by "better than expected economic news.'' I think for the most part economic growth has proved stronger and broader than most anticipated and this has kept pushing the stock market higher.
Carol Schleif of Abbot Downing: While the broad market hasn't seen a correction, individual sectors and indexes have seen both 10 percent corrections and rebounds. The biggest concern across the board is that valuations everywhere have moved up and leave little margin for disappointment.
Russ Swansen of Thrivent Financial: U.S. large caps have advanced about in line with earnings growth expectations for the year. There was a modest correction midway through the first half in the relative gains of mid- and small-cap stocks, which was overdue. Also in biotech and social networking stocks. Those were both good developments and perhaps will provide some support for the market.
Biff Robillard of Bannerstone Capital Management: The most remarkable thing is that the Fed pulling back on quantitative easing hasn't hurt stocks or bonds.
John De Clue of the the Private Client Reserve, U.S. Bancorp: The economy has proved more sluggish than I would have thought, which has led to a more dovish Fed, which has led the Fed to support the stock market.
Q: What's your recommendation for the remainder of the year: buy, sell or hold?
Erica Bergsland: Valuations in both the domestic stock and bond markets are at levels that imply very muted returns from here.
Jim Paulsen: I think the stock market is nearing its high for this year and would not be surprised if the S&P 500 peaked between 2,000 and 2,050 in the next few months.
David Joy of Ameriprise Financial: I expect the bull market to persist beyond any correction as the economy continues to grow, so a long-term investor should only need to remember to stay balanced.
Beth Lilly of Teton Westwood Mighty Mites and Gabelli Small Cap funds: I am bullish on the market and would continue to use any weakness to put money to work. I believe that the underlying strength of the U.S. economy is not fully appreciated by investors.
Biff Robillard: We're in a secular bull market. We'll get a correction. Grit your teeth. Don't obsess over the macro stuff. Own some equities.
John De Clue: I'm going to stay with 1,860 on the S&P 500. I think the market is fairly well valued, but we have a deteriorating geopolitical situation, Iraq is falling apart; problems in the Middle East are maybe more serious than is being reported.
Q: Which asset classes or sectors look most promising and least promising for the remainder of the year?
Doug Ramsey of the Leuthhold Group: Stocks are mildly overvalued in our work, but we see them closing the year a bit higher than current levels (2,050 on the S&P 500) after a late summer correction. Technology groups (semiconductors, computer hardware, IT consulting, data processors) are dominating our attractive list, and health care still looks good. We think small caps are very likely to lag for the rest of this bull market.
Jim Paulsen: First, I would stay overweighted stocks (even though I expect a correction). The long-term potential is still too good to pull away from the market, bonds may be at greater risk of a sell-off than stocks And cash gives investors nothing. Stay overweighted stocks! Second, I would diversify and allocate more overseas both in developed and emerging markets.
Carol Schleif: U.S. companies that use energy and tech innovations are interesting, as their cost of input continues to decline.
David Joy: I continue to like financials, technology and industrials as they should do well in a faster-growth environment.
Beth Lilly: The sectors/themes that I think hold the most promise for the rest of 2014 are 1) the rising middle class in China and India and aerospace suppliers that work with Boeing and Airbus 2) Industrial technology companies that make products which will benefit from an increase in capital spending by corporations. When the "repression" hit, companies slashed their cap spending budgets. We are starting to see corporations increasing their spending on plant, property and equipment after a lean five years. 3) Energy: the U.S. is on the verge of becoming energy independent and this bodes well for many of the companies supplying the energy companies. We are particularly excited about hydraulic fracturing companies in the Bakken and Marcellus regions. 4) Health care: Over $1 trillion is going to be spent on Obamacare over the next 10 years. This will benefit hospitals, insurance companies, the diagnostic companies, and medical products companies.
John De Clue: The U.S. is doing well. The surprise this year is bonds have outperformed stocks. But we will see higher rates eventually and bonds should still be in portfolios. But we could for awhile in the short term have weakness in stock and bond markets.
Q: Brian Belski, a past member of our Investors' Roundtable, said that he thinks there are still 10 years left in a secular bull market. Can we see Dow 44,000 in 10 years?
Russ Swansen: Possible but not probable, 17,000 to 44,000 in 10 years is 10 percent compounded a year in price, suggesting something on the order of 12 to 13 percent total return. The average price return on the Dow since 1950 has been about 7 percent.
Erica Bergsland: I wouldn't bet on it. I am concerned that continued high debt levels, global demographic shifts related to aging and weak capital spending have set the stage for a prolonged period of subdued global growth.
Jim Paulsen: I do think the economic recovery and bull market may continue for another five years or so, but I don't think 44,000 on the Dow in 10 years is that likely.
Carol Schleif: I do think we are teeing up for fundamentally exciting markets overall in and for years to come. We're in the midst of a technology convergence. … There will be winners and losers, though, so it will take a lot of work to stay atop the rapid change.
Beth Lilly: I think that the market is still undervalued as evidenced by the fact that we are still finding inexpensive companies to invest in. I do not think that there is 10 years left in this bull market. My guess is that it is closer to two, three more years.
Biff Robillard: The bulls have always won in the stock market. In the long run, a bull with modest expectations and an iron gut has always done better.
neal.st.anthony@startribune.com 612-673-7144 pkennedy@startribune.com 612-673-7926
