Corporate Earnings Drive Dow to 10K

Two experts say the Dow will continue its pace upwards of the 10,000 mark.

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With the Dow reaching the 10K plateau yesterday, where do the experts stand? Most will tell you 10,000 is just a round number that's easy to single out. U.S. News caught up with two economists, both just as optimistic about the Dow's potential as they were almost a month ago.

Jeffrey Saut of Raymond James & Associates points to recent earnings announcements and says they came as no surprise to him. JPMorgan Chase was the first banking giant to release its monster earnings yesterday, and today Goldman Sachs has followed suit with earnings tripling since the days of the financial panic, according to the AP.

Says Saut: "Corporate profits are the key to economic growth. It drives the whole cycle. Corporate profits have, and will continue in my view, to come in better than expected."

Now that corporate earnings are coming in higher than projected and the stock market is over the 10K hurdle, the next big indicator a lot of investors look to is unemployment. Saut says that's a mistake.

"People are looking at the wrong thing. . . . Employment is at the back end of this. . . . It's a difficult time in between as capital and labor move from the passé industries into the new and you get the creative destruction you see now. "

Saut and fellow economist Brian Wesbury of First Trust Advisors both say that except for a few bumps in the road, the markets are recovering as they should be.

Says Wesbury: "There are three things that make me feel like this is going to continue. No. 1: The Fed remains very accommodative. No. 2: The momentum of the recovery and the market is with us. And No. 3: We still haven't recovered what we lost in the panic, so I do think we're going higher."

Another indicator the two agree on is the amount of negativity in the media right now. "As far as I can tell, the press hasn't even called it a bull market," Wesbury says.

Cautioning investors that the recovery is real, Saut says, "I think the recovery is durable. I think it's probably going to cool off some in 2010, but these people that are telling you that this is a bear market rally and we're going to go back and break the March lows—they've obviously missed one heck of an opportunity."

In terms of a correction in the near future, Wesbury says, "I haven't heard anyone call it a bull market, and that just tells me that we're not at the kind of level of euphoria that you need to see when you have a toppy market or one that's about ready to go into correction."

With interest rates set by the Federal Reserve at virtually zero for months, Wesbury says the Fed is making it as easy as possible to jump-start liquidity in the markets again.

"Capitalism is not dead," Wesbury says. "Now the Fed is making it even easier to get it back and faster, so we're going to get it all back. . . . Sure, there were credit problems, but that's mostly water under the bridge now. . . . Granted it hurts whoever got caught, but just because you've burned your finger on the stove doesn't mean you should stop cooking."