By: franco on Sabato 22 Marzo 2003 12:12
DOW 10.500 - SP 1.100 per fine anno.
PEACE DIVIDEND - BY YARDENI'S OUTLOOK
On Thursday, March 20, I visited several institutional investors in Boston with Professor R.
Glenn Hubbard. Glenn was appointed by President George W. Bush on May 11, 2001 as
Chairman of the Council of Economic Advisers (CEA).1 He resigned on February 28, 2003
and returned to Columbia University. Glenn has been a long-time advocate of eliminating
the double taxation of dividends, an idea which President Bush fully endorses. Indeed, the
proposal is the major component of the administration’s latest economic stimulus plan.
Although I was among the advocates of eliminating the double taxation of dividends last
summer, even I am surprised at the President’s strong commitment to doing so.2
Operation Economic Stimulus. Clearly, if all goes well with Mr. Bush’s campaign to
liberate Iraq, then he will likely have the political capital to get his way in the capitol. In
other words, one of the peace dividends may very well be the end of double taxation of
dividends. Another very stimulative dividend is that the temporary cuts in marginal income
tax rates scheduled for 2006 are likely to be accelerated and made retroactive to January of
this year, and made permanent.
This should be quite bullish for the stock market. In my Target Scenario, the S&P 500 and
the Dow Jones Industrials Average (DJIA) rise to 1100 and 10,500, respectively, by the end
of the year. I assign a 70% subjective probability to this scenario in which a combination of
lower oil prices, ample liquidity, and additional fiscal stimulus boost both economic and
earnings growth. I am now raising my subjective probability for the Better Scenario
(DJIA=11,500), from 10% to 20% and lowering the odds of the Worse Scenario
(DJIA=7000) from 20% to 10%. As a result, the probability-weighted DJIA target for
yearend is 10,500, the same as in my Target Scenario (Figure A).
All important disclosures can be
found at the end of this report.