Back in 1999 we were just coming upon the 10,000 level in the Dow Jones Index. The entire industry was in a bit of a frenzy, hats were worn, signs were made and the trading floors exploded with applause. The 10,000-level seemed almost unapproachable by many who started in the business back in the early eighties as I did. So, is the recent run up to 20,000 in the Dow worthy of the same attention? Yes and no.
Let's be clear, this market run up to the 20K level has a much more solid foundation for valuation. We are not looking at a P/E which has been stretched beyond historic norms as was the case in 1999, nor are we looking at a dot com bubble ready to implode. On the contrary, between digestible valuations and the prospects of real pro-growth policies, we have the foundation for a run up in equities over the course of the next few years which could leave 20K in the dust.
One of the great lessons in the market is that when 'Animal Spirits' take control, one must simply go with it. It's not easy to recognize a paradigm shift, in fact many can only realize the phenomenon after the fact. The Trump victory coupled with the sweep in congress makes this a classic paradigm shift and the financial world needs to embrace it.
The dark days of wasted revenue and liberal tax and spend policies is giving way to an era of fiscal stimulus and pro-growth legislation not seen in 30 years. All this is coming at a time when corporate America, sitting on mountains of cash both domestically and overseas, find itself on the brink of a digital revolution.