Stock Trader's Almanac editor sees 8.9% annual gain for DJIA over next fifteen years; 'can't throw a dart that far'
The Dow Jones Industrial Average will surge to 38,820 in an eight-year “super boom” beginning in 2017, according to Jeffrey A. Hirsch, editor in chief of the “Stock Trader's Almanac.”
“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.
Hirsch's forecast comes more than a decade after James K. Glassman and Kevin A. Hassett predicted the Dow would rise to 36,000 by 2005 in “Dow 36,000,” a New York Times bestseller. The 114-year-old average ended 1999 at 11,497.12 and sank as low as 7,286.27 in 2002 following the Internet bubble. The Dow then jumped to a record 14,164.53 in 2007 and fell to 6,547.05 in March 2009 after the worst financial crisis since the 1930s.
“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.”
The Dow ended last week at 10,860.26, meaning it must gain 257 percent, or about 8.9 percent annually in 15 years, to reach Hirsch's projection. It has lost an average of about 1.3 percent a year since the end of 1999. The Standard & Poor's 500 Index slipped 0.9 percent a year including dividends between 1999 and 2009, the first negative return for a decade since data began in 1927, according to S&P.
The withdrawal of U.S. troops from Iraq and Afghanistan and inflation caused by the wars and spending to end the financial crisis will help push the Dow higher, Jeffrey Hirsch said in the statement. Advances in energy technology or biotechnology may also help spur the rally between 2017 and 2025, he said.
“I can't throw a dart that far,” said Liam Dalton, president of Axiom Capital Management Inc. in New York, which oversees $1.4 billion. “It's too unknowable with regard to the things that would set up that kind of move.”
The “Stock Trader's Almanac,” first published by Hirsch's father Yale Hirsch in 1967, is known for revealing seasonal patterns in equity market returns. The “Best Six Months” strategy shows that since 1950, investors made the most money owning shares of Dow companies between Nov. 1 and April 30 and avoiding them the rest of the year. The book includes data showing the third year of U.S. presidents' terms -- such as 2011 -- produce the best returns.
Glassman and Hassett based their forecast on work by Jeremy Siegel, a professor of finance at the University of Pennsylvania's Wharton School, who had noted that since the early 1800s, equities had never offered a negative return, after inflation, if held for 17 years or more. To the authors, that meant stocks were a safe bet for long-term investors if they could handle short-run volatility.
Glassman served as President George W. Bush's undersecretary of state for public diplomacy and is now executive director of the George W. Bush Institute. Hassett is the director of economic-policy studies at the Washington-based American Enterprise Institute and a Bloomberg News columnist.
The Dow, created on May 26, 1896, by Wall Street Journal co-founder Charles Dow, was initially valued at 40.94 and included American Cotton Oil, Chicago Gas, Distilling & Cattle Feeding, National Lead and Tennessee Coal & Iron. General Electric Co. is the only remaining original member, though it wasn't in the average for nine years starting in 1898.
The Dow surpassed 100 in 1906 and reached 1,000 in 1972. It topped 5,000 in 1995 after jumping 1,000 points in nine months. It was made up of 12 stocks initially, increased to 20 in 1916 and expanded to 30 in 1928. The average's biggest single-day point loss was 777.68, or 7 percent, on Sept. 29, 2008.
