Dow 100,000

June 03, 2024

January 2017. A few months more than seven years ago. Deshaun Watson leads Clemson on a game winning drive to beat Alabama in the college football championship. Donald Trump is inaugurated as the country’s 45th president. The biggest foreign policy story is North Korea’s claim to be nearing development of an ICBM. The Dow crosses 20,000 for the first time.

Suppose it’s January of 2017 – the Dow has just crossed 20,000 – and you find yourself confronted with a time traveler. As a rational, profit-maximizing homo economicus, your first question is where the stock market will be in seven years. Access to a time traveler is handy when making trades. To your dismay, this temporal journeyman is not equipped with specific stock market pricing data, but he does furnish you the following clairvoyance:

  • There will be bear markets in 2020 (S&P 500 down 34%) and 2022 (down 25%).


  • There will be a near bear (down 19.8%, just 0.2% off the -20% official “bear market” delineation) in 2018. So a little rounding gets us to three (!!) bear markets in the next six years (historically we’ve averaged one bear every four years).[i]

 

  • Lest you’re tempted to reallocate from stocks to bonds, we will also experience the longest (45 months and counting – second place was 16 months in the early 80s) and deepest drawdown (-17%, second place was -12% in the late 70s) in bonds on record.[ii]

 

  • There will be a virus. The global economy will be artificially shut down. Supply chains will take years to sort out.

 

  • More wars. Russia will invade a European country. Reinvigorated fighting between Israel and Palestine.

 

  • Federal spending and budget deficits will make the fiscal response to ’08 look Rothbardian.

 

  • There will be a contentious presidential election and the world won’t know the winner for days.

 

  • Inflation will print over 9% annualized – the worst inflationary period since the 1970s (remember the S&P 500 returned 1.5% annualized for a decade in the 70s).[iii]

 

  • The Federal Reserve will hike interest rates at the fastest pace in history.

So you hurriedly draw your smartphone, open your brokerage app, and damage your screen protector from mashing the SELL button so hard.

Too bad the time traveler wasn’t more thorough. Here we are in May of 2024 and the Dow has doubled to 40,000 since crossing the 20,000 mark in January of 2017. For anyone concerned with all-time high milestones, Ryan Detrick has an excellent piece[iv] showing the Dow has recorded positive returns every 3, 6, 9, and 12 months following the 10K, 20K, and 30K milestones (with an average 12-month return of +20%). Whether that trend continues is anyone’s guess (n=3 is a small sample size), but history shows Dow milestones are no reason for concern.

I have read commentaries celebrating Dow 40K. But 40,000 is the present. We are far more concerned with Dow 100,000. The important question presently is not how you handled your portfolio leading up to Dow 40,000. A wise old baboon said it doesn’t matter, it’s in the past. It is what you’re going to do leading up to Dow 100,000. That remains firmly in your control.

From Dow 20,000 in 2017 to Dow 40,000 in 2024, the index compounded at 9.89%/yr.[v] If that pace continues (it’s anyone’s guess whether it will – we certainly don’t know), the Dow will cross 100K in just under 10 years – near the end of the first quarter of 2034. Given an annualized compound rate of return, here’s how long it will take to reach 100,000:

5% - ~19 years (year 2043)

6% - ~16 years (year 2040)

7% - ~14 years (year 2038)

8% - ~12 years (year 2036)

9% - ~11 years (year 2035)

In sum, Dow 100,000 will likely occur in your lifetime.

Financial planning is a business of managing uncertainty. The answer to most questions is some variation of it depends. Should I pay off my mortgage early? What should the allocation in my Roth IRA look like? How much can I plan to spend in retirement? Which entity election should I make for my new business? How should I handle my RSUs? Should I renovate my home now? The answers begin (sometimes infuriatingly) with it depends. Nevertheless, here are four premises we find untarnished by uncertainty:

  • The Dow will hit 100,000 someday (likely in your lifetime).

 

  • This will occur after a long succession of presently unpredictable and terrifying events similar to the journey from 20,000 to 40,000.

 

  • Those who resist the urge to make changes to their portfolio based on the unpredictable, long succession of terrifying events will be very happy.

 

  • Those who succumb to the urge to make changes to their portfolio based on the unpredictable, long succession of terrifying events will not be very happy.

The important question is not whether you’ll see Dow 100,000, it’s whether you remain invested on the way.

Sean Cawley, CFP®

 

Neither asset allocation nor diversification guarantee against investment loss. All investments and investment strategies involve risk, including loss of principal.

Content here is for illustrative and educational purposes only. It is not legal, tax, or individualized financial advice; nor is it a recommendation to buy, sell, or hold any specific security, or engage in any specific trading strategy. Results will vary. Past performance is no indication of future results or success. Market conditions change continuously.

This commentary reflects the personal opinions, viewpoints, and analyses of Resolute Wealth Management. It does not necessarily represent those of RFG Advisory, clients, or employees. This commentary should be regarded as a description of advisory services provided by Resolute Wealth Management or RFG Advisory, or performance returns of any client. The views reflected in the commentary are subject to change at any time without notice.


[i]https://awealthofcommonsense.com/2024/02/how-often-do-bear-markets-occur/

[ii]https://bilello.blog/2024/the-week-in-charts-5-14-24

[iii] YCharts, Fundamental Charts, SPX Level, 01/01/1970 – 12/31/1970.

[iv]https://www.carsongroup.com/insights/blog/thoughts-on-dow-40000/

[v] YCharts, Fundamental Charts, DJI Level, 01/25/2017 – 05/17/2024.