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Dow 20,000 Could Be Just '4 Years Away:' Strategist

Monday, 28 Jan 2013 | 10:52 AM ET
Dow Heading Toward 20,000 - JPMorgan's Lee:
JPMorgan's Chief Strategist tells "Squawk Box" why investors should keep buying stocks and shares his four-year forecast for the S&P and Dow.

The Dow Jones Industrial Average could peak as high as 20,000 four years from now, JPMorgan Chief U.S. Equity Strategist Thomas Lee told CNBC on Monday. He predicted "2,400 [or] 2,500" as the top for the S&P 500 Index in a similar time frame.

Making his bullish case, Lee pointed out in a "Squawk Box" interview that the market has been able to reach multi-year highs, despite investor reluctance to be over-weight equities.

On Friday, the S&P closed above 1,500 for the first time since Dec. 10, 2007. The Dow finished at its highest level since Oct. 31, 2007.

(Read More: Stocks Rally Despite 'People Under-Invested:' Goldman CEO Blankfein)

"There's a lot of reasons investors are sort of fighting the tape," Lee said. "There are still a lot of memories of '08. We still have a taint on owning stocks."

But he believes that will continue to fade and the stock market could top out "around 18, 19, 20,000 Dow … that's obviously 4 years away."

(Read More: Will the Stock Market Bulls Keep Running?)

Lee explained the math behind that prediction. "We're at $100 of S&P earnings. … [But] the cycle peak in earnings is closer to $150. That really follows the historical pattern of S&P profit cycles."

He added, "Mid-cycle S&P multiples are at 17 [times earnings]. We're at 13 or 12 and a half."

"If you put a 17 multiple on $150, the S&P really sort of peaks around 2,400 [or] 2,500" on a time horizon similar to the Dow's top, Lee concluded.

By CNBC's Matthew J. Belvedere; Follow him on Twitter @Matt_SquawkCNBC

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