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The Simple Math of S&P 1,800

Kevin Cook here to start the week off for Steve...

Have you heard market bears say that the only thing driving stocks to new highs - besides QE money-printing - is short-covering? It's an easy ploy to fall for and I want to make sure you are never susceptible to this lazy, bitter thinking.

First of all, there are trillions of investment dollars chasing a few thousand quality companies that may or may not deserve them. Second, the investment thesis of the portfolio managers doing the stock-picking begins and ends with forward views of the economy and earnings.

So they are "heads down picking stocks" as I like to say. And if they are not, guess what happens? That dip they waited for, and then stared at below S&P 1600, quickly got away from them. This creates the performance-chasing you saw last week where they "HAD TO BUY!"

Bottom line: The S&P will likely have another pullback to 1650 before we hit 1750 this year. But what it's already beginning to trade on besides Q2 earnings is this simple math: 2014 EPS estimates of $110-115 X a P/E multiple of 16 = S&P 1,800. You can take that to the bank.

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Kevin Cook

Senior Stock Strategist

Zacks Investment Research

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