Strategist Predicts Dow 20K by 2022

The Federal Reserve's policy-making arm is meeting this week and an announcement (or hint) of more stimulus, or quantitative easing, could lift major indexes higher. Investors are widely expecting Fed officials to take more action to boost the sluggish economy. The European Central Bank and the Bank of England will also publish their decisions on interest rates and ECB President Mario Draghi will be expected to give more clarity to statements he made last week when he said the central bank is prepared to do "whatever it takes to preserve the euro zone."

More corporate earnings reports, North American July auto sales, the S&P/Case-Shiller Home Price Index, and same-store retail sales will also give investors additional data to chew this week and could determine how the markets will end the month. The Dow Jones Industrial Average and S&P 500 Index both ended last week in positive territory after a shaky trading start and each index is up more than 1.5 percent in July. Year to date, the Dow has gained 7.02 percent and the S&P has risen 10.21 percent.

With six months left until the end of the year, there are still significant headwinds that could reverse the markets' upward trajectory. A resolution to the 3-year European debt crisis may not happen until next year and the looming fiscal cliff in the U.S. and the November presidential election have investors and corporations on edge. Money from around the globe has poured into U.S. Treasuries, cementing the U.S. as a safe-haven but sending Treasury yields to all-time lows.

Investors, many of who are still reluctant to buy stocks after the 2008 financial crisis, have become risk-averse and continue to choose cash and bonds over equities. This behavior will cause many investors to miss out on big returns that will be coming over the next decade, according to Bernstein Global Wealth Management's Seth Masters.

"We're in the middle of a huge safety bubble where people are so interested in short-term safety that they're eager to buy 10-year government bonds that yield 1.5 percent in the U.S. and that is extraordinarily strange and unusual," Masters says in a recent Yahoo Finance video. "What's happened is that people have become so fearful in the present about the risk of loss from equities but they're forgetting about the other risk of investing: they might run out of money."

Masters says market volatility will persist in the near future but it won't be enough stop the Dow from hitting 20,000 in 10 years (or the S&P 500 touching 2,000 in the same time frame), which Masters argues is not an overly optimistic position. He projects global and U.S. stock markets will return about 8 percent over the next decade, a conservative rate but one that would still push the Dow above 20,000.

Masters emphasizes that his projections are well below the long-term average for U.S. and global equities. As for valuations, Masters says stocks are "very very cheap" relative to long-term and current interest rates and therefore "it doesn't take that much for stocks to deliver good returns."

Masters tells his clients to tune out the financial and economic headlines and resist the urge to pour all their money into bonds.

"The key problem today is that fear has become so preeminent that it's trumping really common sense — and the common sense is the world is not going to end tomorrow," Masters emphasized.

The Web Goes to Washington

A collection of Internet firms — rumored to include heavyweights like Google (GOOG), Facebook (FB), Amazon (AMZN), and eBay (EBAY) — are reportedly coming together to create a new Web industry trade group called The Internet Association that will keep tabs on the sector's political and regulatory concerns in Washington.

Set to start work in September, the group has tapped Michael Beckerman, the former deputy staff director of the U.S. House Energy and Commerce Committee, as its first president, although details about its exact plans and membership are still unclear at this point.

"The Internet isn't just Silicon Valley anymore," Beckerman said in a statement following his announcement as president. "The Internet has moved to Main Street. Our top priority is to ensure that elected leaders in Washington understand the profound impacts of the Internet and Internet companies on jobs, economic growth and freedom."

The development likely won't move the needle too much for the average Internet user, but that isn't to say a Web-focused lobbying body won't have a profound impact on our virtual lives. As the Internet becomes more integral to our work and leisure time, issues like data security, privacy, and communications standards will become increasingly political and the subject of much debate on Capitol Hill.

"Will this have a direct impact on the consumer? No," says Alan Webber, managing partner of the Altimeter Group. "But will it influence their experiences online? Oh, yeah."

Many of the big Internet players have been active in Washington for some time. Google already has a large presence in the nation's capital, as do Facebook and others, and the companies themselves have been working on regulatory issues and shaping policy on their own for years. The change now, Webber says, is that the industry is coming together to address shared concerns like digital security, visa requirements for overseas engineers, online sales taxes, and revenue repatriation on a larger, more organized scale.

In the words of one analyst, the Internet has finally "grown up."

"These companies already swing some fairly big-sized bats here in D.C.," Webber says, "and they have some of the best lobbyists on K Street. That being said, they've never really come together and said, 'this is an issue for all of us,' like what you see from the pharmaceutical companies and the automakers. Honestly, I'm surprised it took this long."

In addition to the obvious key players, Webber expects to see Internet start-ups and even some venture-capital firms getting involved at some point, as regulatory issues will likely have a direct impact on their businesses and investments as well.

Part of the reason that this is happening now, many feel, is the sheer size of the modern Internet and the real-world dollars that now rely on its success. Google and eBay aren't fledgling start-ups anymore. They are now multibillion-dollar global corporations that are facing many of the same regulatory hurdles that GM, Wells Fargo, and Procter & Gamble did in their early days.

"Suffice it to say, if the reports of the companies involved are correct, than we're looking at close to half a trillion in market value here," says Colin Gillis, senior technology analyst and director of research at BGC Financial. "These guys have an incentive to have some cohesion in their efforts. I think the real story behind this is that the industry has grown up enough that it needs to have some cohesive voices."

Going forward, Gillis believes that data privacy and targeting are going to be big issues for the industry, and he expects that trend may well play a role in how the Web titans focus their lobbying efforts.

"We're about to have another whole wave of identification and privacy issues," he says. "Like when Google glasses come out and you're being tagged and identified without even knowing it. And Facebook. Why did they buy Face.com? It wasn't for the domain name."

Interestingly enough, Beckerman's selection as president came as more of a surprise to many than the formation of the group itself, despite his long resume in Washington.

"You know, I pinged a lot of my lobbyist friends after the announcement came out and nobody seems to know him," Webber says. "He was never a big player."

New to the scene or not, Beckerman and his backers now have the attention of millions of Internet users and their moves over the next few months could shape the Internet for years to come.

US Consumers More Confident in July

Americans breathed a bit easier about the economy in July, as a better outlook on short-term hiring and lower gas prices offset lingering worries about poor income growth.

The Conference Board said Tuesday that its Consumer Confidence Index increased to 65.9, from 62.7 in June, the first increase in five months. That's the highest reading since April and better than the reading of 62 that economists had forecast.

"Consumers had a much improved view of job prospects, not immediately, but six months from now," said John Lonski, chief economist at Moody's Capital. "They're extrapolating from the dip in energy prices and recent firming of equity prices."

Still, the index remains well below 90, which indicates a healthy economy. It hasn't been near that level since the Great Recession began in December 2007. The index fell to an all-time low of 25.3 in February 2009 — four months before the recession officially ended.

Consumer confidence is widely watched because consumer spending drives 70 percent of U.S. economic activity. A separate Commerce Department report Tuesday showed Americans spent no more in June than May, even though their income grew by 0.5 percent.

The consumer confidence report is based on a poll conducted from July 1 through July 19 of about 500 randomly selected people nationwide.

Lynn Franco, director of economic indicators at The Conference Board, said consumers attitudes toward current conditions were little changed in July, and the overall index remains at historically low levels.

"While consumers expressed greater optimism about short-term business and employment prospects, they have grown more pessimistic about their earnings," she said in a statement. "Given the current environment — in particular the weak labor market — consumer confidence is not likely to gain any significant momentum in the coming months."

The amount of consumers expecting business conditions to improve over the next six months rose slightly, according to the survey. Those expecting more jobs in the months ahead increased as well. But fewer people in July expected that their incomes would increase.

"People are not only fearful of losing their jobs; they think that if you do lose your job, your next position may indeed be at a lower salary," said Lonski.

Consumer confidence has fluctuated over the past year. It rose during the first quarter and then retreated over the past four months.

"We believe consumer confidence will remain choppy until we have a resolution of the situation in Europe, or better yet, until the November elections," Lonski said.