Here’s the case for Dow 30,000 in Trump's first term

21.02.2017 / 10:39

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The fundamental case for Dow 30,000 during Donald Trump's first term has strengthened as earnings season winds down.

Interestingly, this is happening at a time when, from a technical perspective, the stock market has staged a successful breakout of low volatility since the election. Still, there are two danger signs.

The biggest single factor in the long-term direction of stocks is earnings growth. The current consensus for S&P 500 Index SPX, +0.17% operating earnings (often traded using the SPDR S&P 500 SPY, +0.16% ), are $133 per share. According to the Arora Report’s analysis of Trump's proposals, tax cuts could add about $13 to S&P 500 earnings. Deregulation could add another $7. If gross domestic product growth were to accelerate to 4%, S&P 500 earnings could reach as high as $190 by the end of Trump's first term.

Given the potential growth in the economy, in spite of the Federal Reserve’s plan to raise interest rates, the price-to-earnings (P/E) ratio may stay in the range of 18 to 21.

For the Dow Jones Industrial Average DJIA, +0.02% that translates to reaching over 33,450 by the end of 2021, Trump's first term.

To be sure, there are big risks. Trump might not be able to execute his plans and he might start a trade war.

Even if the Dow reaches 30,000 in Trump's term, the trajectory wouldn’t be a straight line.

Under that scenario, the stock market would be a strong trending market. And in a strong trending market, the Holy Grail is to buy stocks with good fundamentals as prices dip.

Here are 10 stocks investors should consider buying on dips: Applied Materials AMAT, +1.68% Amazon AMZN, +0.11% Bank of America BAC, -0.24% E*Trade Financial ETFC, +0.00% Facebook FB, -0.23% Alphabet GOOG, +0.47% or GOOGL, +0.52% J.P. Morgan JPM, -0.33% Micron Technology MU, +1.61% Royal Dutch Shell RDS.B, -1.79% and T-Mobile TMUS, +5.46%

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Here’s the case for Dow 30,000 in Trump's first term

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