Uh-oh. Jeffrey Hirsch, author of the long-running ‘Stock Trader’s Almanac’ has forecast the Dow Jones Industrial Index to hit 38,820.
But the catch is that he believes the majority of future gains won’t start until 2017, when we enter an eight-year super boom.
So he’s forecasting Dow 38,820, by 2025:
“All previous major economic booms and secular bull markets were driven by peace, inflation from war and crisis spending, and ubiquitous enabling technologies that created major cultural paradigm shifts and sustained prosperity,” he wrote in a press release sent with the 44th edition of the book.
So he’s looking at the growth stage that comes after our current multi-year debacle. Still, not everyone’s a believer:
“He’s got some crazy number on there,” said Frank Ingarra, a Stamford, Connecticut-based money manager at Hennessy Advisors Inc., which oversees about $900 million. “We’ve had probably one of the worst 10-year periods in history, and I think there’s just too much overhang with the government for it to get to those numbers.”
But, really, is 38,820 such a wild forecast?
With the Dow Jones at about 10,830 right now, hitting 38,820 by the end of 2025 implies an average growth rate of about 9.4% growth per year. This is high but not completely removed from the stock market’s performance record pre-2000.
“But the stock market hasn’t even gone anywhere in the last 10 years?”
Exactly. That’s what makes his forecast look pretty reasonable.
See, while stocks haven’t gone anywhere over 10 years, the size of the U.S. & global economy underpinning them has grown far larger. The U.S. economy is over 45% larger than it was in 2000, despite the recent crisis, and the entire world’s GDP is 90% larger than it was in 2000 based on World Bank data. Yet a major index such as the Dow, which represents ownership in key U.S. businesses tapping this larger economy, is still near the same price as in 2000.
Getting back to the Dow 38,820 forecast, if you consider that the Dow is roughly flat with where it was in year 2000, then Mr. Hirsch’s prediction only says that the Dow Jones will deliver an average annual increase of about 5.2% over the 25-year period from 2000 – 2025.
Thus his view is certainly within the realm of reason and not a wild forecast by any means. He’s just savvily communicated his forecast to make headlines. 5.2% long-term growth wouldn’t be too sexy of a forecast.
In fact, it could even turn out to be too conservative, given that stocks pre-2000 had a much higher long-term average growth rate than just 5.2%. So Dow 38,820 here we come… by 2025.