Daily Dispatches
A trader works the floor of the New York Stock Exchange Thursday.
Associated Press/Photo by Richard Drew
A trader works the floor of the New York Stock Exchange Thursday.

Dollars and Sense: Could the Dow reach 16,000, or even 17,000 by year’s end?

Money

Earnings season. We’ve entered earnings season for the markets, as we do each quarter, and the news so far this week has been upbeat. Alcoa is a huge aluminum manufacturer, so it’s considered a good gauge of manufacturing activity worldwide, and because it’s usually the first big public company to release earnings, it dominates the business news cycle four times a year. Last quarter’s results were released on Monday, after the markets closed, and they were better than expected, which was important because earnings have been a bit disappointing over the past couple of quarters. Some analysts say stocks are overvalued compared to their current earnings, so a strong earnings season could mean that stocks still have some upside.

Minor turnaround. This upbeat news—and the response of the markets—represented something of a turnaround from last week, when the markets had their worst week of the year. I have to admit, though, that even last week wasn’t terrible. In fact, I saw an interesting statistic this week: The Dow has yet to have three down days in a row this year. The last time we went that long without three down days in a row was 1978, when the Dow ended up 18 percent for the year. I, of course, will make no prediction about whether that will happen this year, but Jeremy Siegel will. I talked with the Wharton School professor and famous bull this week, and he said the Dow would have “no trouble” reaching 16,000 by the end of the year, and that 17,000 was a possibility. He expects 2014 to be a good year, too. We’ll see, though I will admit that his predictions in recent years have been pretty good.

Budget battles. Earnings releases weren’t the only economic news this week. President Barack Obama finally released his budget. In the time-honored Washington tradition, his team had been leaking pieces he wanted people to pay attention to in advance. One of those pieces was a plan to link Social Security payments to the so-called “chained CPI.” Without going into all the details, it simply means the government will calculate cost of living increases using a different formula than the current formula. President Obama claims this change will save billions annually, and it is a change that Republicans have been asking for.

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Republican response. So does this mean Republicans will go for the budget? I doubt it. There’s still a lot of pork and nonsense in it, and the fundamental issue—what, in fact, is the role of government anyway?—is almost completely ignored. The budget just assumes the federal government has a right and responsibility to have a role in just about every area of public and private life. But I will say that I’m in Washington this week, and I attended tax hawk Grover Norquist’s famous Wednesday morning meeting, where about 200 conservative activists gather each week to give short reports about what’s going on in the conservative movement. There was surprisingly little energy in the meeting for the budget. (People seemed more interested in telling Margaret Thatcher stories, and some of them were entertaining.) But the battle is just beginning, and I did get a chance to meet, at different times this week, both Paul Ryan and Eric Cantor, and they were both ready with talking points highlighting problems with the president’s budget. Among them: The president’s “chained CPI” idea is a step in the right direction, but it is nowhere near true entitlement reform. But Ryan did give the president credit for putting a budget on the table, and said it was a very small step in the right direction.

Warren Cole Smith
Warren Cole Smith

Warren, who lives in Charlotte, N.C., is vice president of WORLD News Group and the host of the radio program Listening In. Follow Warren on Twitter @WarrenColeSmith.

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