23,000 on the Dow …time to rebalance?

by Eliseo "Jojo" Prisno

CRPC, MS Chartered Retirement Planning Counselor


The Dow Jones Industrial Average logged its fourth 1,000-point climb over the past 12 months as of this writing. Since the election of last year, the Blue Chip Index has climbed almost 26%, the S&P 500 broader large cap index at 20% while the technology laden NASDAQ Composite logged a whopping 28%. Even the popular index of small companies, the Russell 2000, has climbed almost 26%. This Blue Chip Index run is more like a 1,000-point add on every quarter.

This tremendous growth has been attributed to Trump’s tax plan. This enthusiasm cores on the belief that Wall Street-boosting measures like deregulation and tax cuts will pave way to further gains. Corporate earnings have also supported this run-up in the equity market buttressed by an improving economic outlook since the 2008’s great recession, the most recent global financial debacle since the great depression. The question now is, will this continue?

Tax Reform package

I believe looking at the fundamentals like the P/E ratios. There is still room for further growth and at the current level of economic productivity an additional 10-15% growth is still realistic. I wouldn’t be surprised if we achieve half of this before the end of 2017. A lot of equities, especially in the technology sector, can still grow its current intrinsic value. Beyond the 10-15% add on value, however, a new catalyst is needed to sustain the run and my belief is it should be the realization of Trump’s political promises, such as the Tax Reform package. If this comes into fruition, then I’m sure a new wave of bullishness will emerge. This for me is the most important catalyst for a sustained equity intrinsic value build up. Tax Reform will favor our consumer driven economy because there will be more cash for most Americans to spend. Lower taxes specially with the middle-class Americans means more money to take home and spend. Consumer spending has always been the biggest driver for our GDP growth.

Market momentum

The question, however, is can he get his Tax Reform promise into fruition? Does he have the political capital (considering the notoriety of his social politics) to deliver this land mark fiscal reform? The Tax Reform draft has been submitted to Congress for debate and interestingly the fundamental issue is not so much on the tax package design and mechanics. Everyone seems to agree on the tax package bottom line. The fundamental issue lies in the basic definition of who the middle-class Americans are to receive the core of the tax reprieve.

Congress still needs to redefine the income threshold on who to cluster in certain income classes. Are they the 100K-120K earners, or 150K and 200K earners? Who are the current American middle-class? This question I’m sure will eat much of the delivery time to get this reform into fruition. Further delays will hamper market momentum and could fuel bearish sentiments. This may not be the expected Trump dump but this delay can equate to a significant market correction for the short term.

Income stream

If you’re invested and had captured this growth during the past 3 years, I would advise investors to harvest their gains and place them in stable value funds or even structured products like fixed index contracts from insurance carriers that preserves principal and guarantees future stable income. Let’s say, for example, I have a USD 200K stocks portfolio which had been invested since 2012 (most people went back to the equity market 4 years after the massive correction in 2008). By today, it should be about $300K. I will harvest a third of it (the $100K) and place it in a fixed index contract, then create an income stream from the placement after a year so I can start enjoying the cash flow from the portfolio growth. I will avail, for instance, the 10% free withdrawal program window and spend the money.

As for my $200K original investment, however, I will continue to ride the market. If dividends are yielded, I will enjoy the dividend yield as well as part of my income. My equity placements, however, will be those stocks with potential intrinsic value build up, like for example, in the technology sector. I will not advise you to abandon the market; that will be counter-productive. To rebalance or reposition is the smarter approach. I always advise to work with an adviser licensed to deal with equity or stock investments. Not all financial professionals are properly licensed to advise on stock investing.


ABOUT THE WRITER: Eliseo Jojo Prisno is a Chartered Retirement Planning Counselor (CRPC).He founded P/E Capital Investments in 2010, a State Registered Investment Advisory Firm (CRD# 172695). As the firm’s Managing Director and Senior Investment Advisor, he also manages a Fund of Funds investment program with Ameritas and runs an All-Equity Growth and Income customized portfolios in separate accounts via E*Trade Securities. If you have questions or desire a complimentary analysis of your investments or retirement readiness, email or call 1-888-929-2825. Visit our website and our Facebook Page.




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