11/15/2021 Update
November print edition headline Dow 3,600 corrected to Dow 36,000 in online and virtual editions.
by Kenneth J. Entenmann, CFA
Well, we finally made it. The long-ridiculed prediction by James Glassman and Kevin Hassert in their 1999 book titled “Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market,” has arrived.
It took a lot longer to get here than predicted, but we made it. The market has a habit of humiliating the great prognosticators of the world. But the central premise of the book remains based in the simple math of compounding. According to Wharton Finance professor, Jeremy Siegel, since 1802, equities have produced annual average total returns (including price changes and dividends) of 6.5 percent to 7 percent after inflation. In a recent Wall Street Journal article today, Mr. Glassman does the math, and it suggests we will have a Dow 1,000,000—in 50 years.
Unfortunately for market forecasters, the market never moves in a linear fashion and major disruptions can knock the markets off track, often for prolonged periods. In defense of Glassman and Hassert, few investors predicted the dot.com bubble, the Financial Crisis of 2008 and COVID. Yet here we are—Dow 36,000. The record is clear, there are no 20-year periods where equities posted a negative total return. It is a testament to the power of long-term, discipline investing.
Today, the equity markets have risen to record levels once again. As discussed on my Market Insights blog, these record levels have been achieved by incredible earnings growth, very benign interest rates and massive liquidity. The market is here despite a host of worries; COVID, dysfunctional government and the looming threat of inflation.
The economy slowed in the third quarter, posting a disappointing 2 percent GDP. The market has concluded that this slowdown is indeed “transitory” and was due largely to the August-September Delta surge. Today, COVID cases, hospitalizations and deaths have once again plummeted, which is great news.