The Dow to Surpass 16,000 by January: Siegel

Over a year ago Jeremy Siegel proclaimed that the Dow Jones Industrial Average, then near the 12,000 level, was on its way to 15,000. Despite another global-slowdown scare last summer, more European-debt indigestion and a brutal election and fiscal fight, the market has just about obliged, with the Dow riding the latest leg of the four-year-old bull market to a new high near 14,600 last month.

“We’re not done yet,” says Siegel, professor of finance at the Wharton School of the University of Pennsylvania and author of Stocks for the Long Run: The Definitive Guide to Financial Market Returns & Long Term Investment Strategies, 4th Edition, a study of stock returns since the 19th century.

Siegel forecasts a continued climb in the Dow to between 16,000 and 17,000 by the end of 2013, with a possibility of a trip to 18,000 by the end of next year.

Siegel hangs his upbeat view on the impressive profit gains of Corporate America and the extremely low interest rates that ought to embolden investors to pay more for company earnings, in the form of higher share prices. After failing to keep pace with the powerful rebound in reported profits off the grim 2008-2009 recession, stock prices since late last year have shot up quickly even as earnings growth has moderated, fattening their price-to-earnings multiple.

Stocks, according to Siegel, “should have a higher P/E” when their “major alternative” – bonds – have such low yields. The Standard & Poor’s 500 index is a bit above 14-times the consensus profit forecast for 2013, which Siegel views as modest given long-term Treasury yields around 2%.

Of course, one could counter that stocks, by these standards, only look attractively valued relative to a category of investments called bonds that most now view as exceedingly expensive.

Siegel offers that “interest rates are way too low, and the bond market is a dangerous place.” His rosy take is that long-term Treasury interest rates can rise above 3% or even reach 4% without compromising the bullish outlook for equities.

While Siegel has correctly been optimistic on stocks during the current bull market, his consistent favoritism toward equities since the publication of “Stocks for the Long Run” in 1994 has left him open to charges of being a “perma-bull.” Siegel, along with many others, was positive on stocks near the 2007 market peak and thought 2008 – the year of the financial-crisis meltdown - would be another up year. Still, his work on the return potential in stocks for those with a very long-term time horizon has not been upended even by the 2007-2009 bear market.

Siegel also points to the long-term market record to argue that stock investors need not fear the day when the Federal Reserve eases off, or reverses, its extraordinary monetary stimulus efforts.

While the stock market can be expected to wobble or even sell off sharply upon seeing the Fed become less generous at some point, Siegel points out this will only happen under better economic conditions, which would support corporate performance. The historical pattern says the start of a Fed tightening program is not what thwarts a stock bull market. Rather, only when the Fed is getting closer to the end of a rate-boosting cycle does the Dow typically peak and humble the bulls.

Millennial Housing Boom Underway

The housing market has leaped head first into recovery mode. March’s housing numbers show that the S&P Case-Shiller Index is rising more quickly on an annual basis than it has since 2006, existing-home sales have experienced 12 months of year-over-year price increases and new home sales are 29% higher than they were a year ago.

A new survey by PulteGroup shows that the housing market will continue its upward trend. The study interviewed renters between the ages of 18 and 34 (otherwise known as generation Y or millennials) and found that 65% of respondent's intentions to buy homes had increased over the past year. 52% of millennials indicated a desire to own and build equity.

There are around 90 million millennials living in the United States, making them the largest demographic group in the county's history - an onslaught of this group into the housing industry could create a boom larger than anything the U.S. has ever seen before.

But according to the survey most of these millennials will not be living in their new home alone. 76% of millennials will be moving in with their better half and 22% will be moving in with a relative or roommate.

The most important feature for millennials looking for a new home is the layout. 69% of respondents desired an open kitchen and family room space for entertaining purposes.

Still, things might not be as peachy as they seem says Jonathan Miller, President and CEO of Miller Samuel. “I think we’re seeing a sign of that but it’s still very early in the process," he says. "The idea of people living with their parents because they can’t afford to go out on their own has been a problem since the credit crunch began five or six years ago."

Miller also notes that more millennials are buying because they’re faced with record high rents. “When faced with these rents,” Miller tells The Daily Ticker, "they’re more likely to make the rent vs buy decision and some of them are ending up on the purchase side.”

Miller claims that credit needs to continue to ease in order to get more Generation Y’ers into homes. “I think credit is going to ease over the next couple of years, but it certainly isn’t at the moment," he says.

Still, there is a silver lining. Most millennials are first time owners meaning they don’t have to grapple with selling a home or coming up from a home that’s underwater, says Miller, in that way the housing market is much more accessible to them.

Gold Settles at Lowest Level in Nearly Four Weeks

Gold futures fell sharply Tuesday to end at their lowest level in nearly four weeks, as strength in the dollar and a rally in U.S. equities lured investors away from the precious metal.

“Risk appetite is continuing to pressurize gold,” said Mark O’Byrne, executive director at bullion dealer GoldCore, but the metal’s fundamentals remain sound and “smart money will continue to buy on the dip.”

Gold for June delivery dropped $25, or 1.6%, to settle at $1,575.90 an ounce. That was the lowest settlement for a most-active contract since March 7, FactSet data show.

It was just a day earlier that gold reclaimed the $1,600 an-ounce level, rising $5.20, or 0.3%, to settle at $1,617.90 an ounce, feeding off weaker-than-expected U.S. manufacturing data.

On Tuesday, investors grappled with a clutch of downbeat European data, including figures showing a deeper factory downturn in March, which drove the euro south against the dollar. The greenback also climbed as the Japanese yen weakened ahead of a Bank of Japan policy meeting.

Whereas a weaker dollar provides support for prices of dollar-denominated commodities such as gold and oil, a stronger dollar works in the opposite direction. The ICE dollar index traded at 82.877, up from 82.744 late Monday in North American trading.

The recent tight trading range and the Easter holiday likely moved gold prices closer to the levels traders have set for automatic sell orders, according to Gene Arensberg, editor of the Got Gold Report, which provides technical analysis of the gold and silver markets.