The mid-February 2012 issue of Barron’s was widely cited as a sure sign that the DJIA had topped out. The Dow Industrials had closed the previous week at 12,785. Barron’s projection of another, greater than 17% move up by no later than 2013, appeared wildly optimistic.
The theory that bullish covers mark market tops was widely circulated as "proof" that the move off the March 2009 nadir was over.
Both doubters and yea-sayers at that point in 2012 could later claim victory. It all depended on what time frame you used. The index continued to move higher for another six weeks. It then dipped before another reversal saw the DJIA rebound into early May.
A brutal five-week sell-off knocked the DJIA back towards 12,000 by the first week of June 2012. Around the middle of November, nine months after the bullish Barron’s cover, the broad market was still lower than when that 15,000 target was published. Score one for the contrarians.
"Fiscal cliff" worries took the gloss off a late-in-the-year rally. Ever since, it has been full speed ahead. From Feb. 10, 2012 through last week’s close, the Dow's gain is now greater than 18.2% (plus dividends). Round two went to the bulls by a knockout.
Barron’s is back at it again this week. They are legitimately patting themselves on the back for surpassing their February 2012 goal. Their new cover points to DJIA 17,000 before New Year’s Eve.
Jeremy Siegel noted that the five-year total returns from the period ended April 30, 2013, were well below the market's long-term median. He suggests that leaves plenty of room for future growth in addition to the nice run we've seen since March of 2009.
Stocks are nowhere near as cheap as they were a few years ago. Zero interest-rate policy (ZIRP), however, has effectively removed any serious competition from fixed income. Historically unprecedented levels of quantitative easing, aka digital money printing, by America’s Fed, European Central Bank (ECB) and the Bank of Japan (BOJ) will ultimately undermine fiat-based currencies. Equities should get an equal and opposite mark-up in price just to compensate for the increased replacement value of assets and what should be much higher nominal earnings power.
Check back in 2014 to see if the cover story jinx is fact or fiction this time around.
View my own Portfolio and Value Investing articles on Market Shadows.
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