White House trade adviser Peter Navarro argued the Dow Jones Industrial Average would top 32,000 points by the end of the year, but there may be a reason to be a little less optimistic, according to one market expert.
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On Friday, all three major averages closed at all-time highs. The Dow on Wednesday closed above 29,000 for the first time after President Trump signed the landmark phase one trade deal with China.
However, Matson argued that, in reality, large stocks — such as those comprising the Dow — have a 10 percent rate of return and only double every seven years.
“Investors are making a huge mistake right now. They’re falling in love with the S&P 500 and large U.S. stocks like the Dow and they have so much risk now because they moved into this one asset category,” Matson said.
Matson added that investors are neglecting the fact that the S&P fell 9 percent between 2000 and 2009. He believes that investors need to stay diversified.
“You want to fall in love with your spouse, not with one asset category,” he said.
The market can be very random, making it hard to predict which direction the next 20 percent movement will swing, Matson said. Given that, he argued investors should have large-cap U.S. stocks in their portfolios but should sell them when things like short-term fixed income and emerging markets are down. They should then buy international assets, he added.
Matson suggested that American investors are actually doing the exact opposite, not knowing how much risk they are actually taking.
“Anyone who lives under the delusion that you can predict the future should have had that largely blown away when President Trump became our president,” he said.