There's a super-cycle playing out in the markets that's being led by AI, says James Demmert, chief investment officer at Main Street Research.
Not only that, Demmert thinks it could take the Dow above 100,000 in the next 10 years.
“We did some critical math on this to make sure,” he said. “Look at the history of business cycles and then look at them when they have some sort of transformational technology change.”
Demmert points to the Industrial Revolution and the internet boom of the 1990s as examples of such super-cycles that occurred as new technology allowed economies to do more with less, thereby enabling profit margins to expand.
“We go back and we say, ‘Can earnings triple or double? What will they do over that seven-to-nine year period?’ which business cycles last,” he said. “And we think earnings can triple and that puts the Dow over 100,000. The Nasdaq and the S&P will also triple, even from these levels.”
In other words, don’t fret if you think you’ve missed the rally. There’s still a ways to go in Demmert’s opinion. The Dow closed Monday at 39,566.85.
Main Street Research is a wealth management firm founded in 1993 with assets under management of roughly $2B.
Furthermore, Demmert says the AI-powered rally will take more than just technology stocks (aka the Magnificent 7) higher.
“You're already starting to see it broaden out a little bit,” he said. “I think you're see a lot more of that over the next few years.”
All that said, Demmert is clear that he doesn't see the Dow rising from its current level to 100,000 without a few stumbles along the way. And it's important to be in the right stocks and sectors as well, in his view.
“There will be bubbles in equity prices as we go forward,” he cautioned. “So use risk management tools. Be really careful out there.”
Finally, Demmert expects international stocks to come along for the ride as well. It’s an AI world in his opinion, and we are just starting to live in it.
“We think it's going to affect great companies around the world,” he said. “Be a global investor as you put money to work.”
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