Dow 20,000 is coming this year, and here’s why: Strategist

The Dow Jones industrial average hit a record high of 18,390 in early Wednesday trading, and one strategist thinks the good times will just keep coming as the index rises to 20,000 before year's end.

Eddy Elfenbein, editor of the Crossing Wall Street blog, sees the Dow rallying to 20,000 "by the end of the year" for a number of reasons that range from average performance after a record high, to the (relatively) high yields offered by the stocks within the index.

Elfenbein notes that stocks tend to perform well after hitting a fresh record high. In fact, a Bank of America Merrill Lynch research report released this week concluded that 250 days after the S&P 500 reaches a 52-week high following "a long pause," the index is up 91 percent of the time 250 days hence, with an average return of 15 percent.

"Plus, if you look at the Dow right now, 13 of the Dow stocks yield more than 3 percent. That's two years' work out of the 10-year bond right now," he added Tuesday on CNBC's "Trading Nation." He expects that to drive more and more investors to buy stocks.

Finally, a quirk of the Dow's construction — the fact that it is price-weighted, so that a stock priced at $100 has twice as much influence on the index as one priced at $50 — could also be supportive, given that Elfenbein is bullish on the stocks with the highest share prices.

"A lot of those high-price names, particularly in the financials sector like Goldman, like JPMorgan, they look pretty good here," said Elfenbein. "Also in the tech sector, a lot of those names like IBM and Microsoft [are at valuation levels] that I think [are] pretty favorable."

MKM Partners' chief market technician, Jonathan Krinsky, also sees the Dow's financials and tech stocks leading the way to a big rally for the index. Given their outsized influence, he looked at two of the Dow stocks with the highest share prices.

The first is tech company IBM, which has lagged for the last two years after a huge drop in 2014. But its stock is up more than 14 percent year to date, and Krinsky sees a further recovery in sight for the company.

"We know that IBM has been a laggard for a few years now, but it's actually starting to show some signs of breaking that downtrend it's been in for the past couple of years," Krinsky said Tuesday, also on "Trading Nation." "It's above its 200-day moving average which is starting to rise."

In the financials sector, Krinsky's pick is Goldman Sachs, which holds the third-biggest weight in the Dow. If more investors turn their attention toward financials, Krinsky sees Goldman as a top stock for that particular sector.

"If you see some rotation back into the financials, Goldman could be a leader there, and that could be another stock that could propel us up towards that 20,000 level," he said.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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