Could Dow hit 1M in the future?
Seems unbelievable but entirely doable
“Dow 1 million” in the year
2117 has a science fiction, Hollywood movie ring to it.
It is a far-off, hard-to-imagine milestone that conjures up visions of a still-rising, machine-driven stock market in a futuristic world.
It evokes images of a market dominated by innovative companies — corporate entities that likely don’t yet exist selling
22nd-century whiz-bang, techdriven products that haven’t been invented yet to people that haven’t been born yet.
It speaks to the theme of investing for the long haul. And it is fodder for debate about the “Dow of Tomorrow” and how we get from the Dow’s current level around 22,000 to Dow
1,000,000.
The buzz about the Dow Jones industrial average hitting seven digits within the next 100 years has heated up after billionaire investor Warren Buffett, 87, recently said it is “not a ridiculous forecast at all if you do the math.”
Still, Dow 1,000,000 makes Dow 10,000, first crossed in
1999, seem downright pedestrian. Buffett’s call also towers over other wild predictions put
forth in books such as Dow
36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market and Dow
100,000: Fact or Fiction. These books, when published in 1999, were often ridiculed for being overly bullish.
The Oracle of Omaha’s prediction may be less pie-in-the-sky publicity stunt than prior Dow calls. And more about market math that suggests the numbers might very well add up to Dow
1 million as he predicts. Hitting that historic milestone in the next century is doable, market pros say. “While it’s no means easy money, from an economic perspective, the forecast of Dow 1 million by 2117 seems pretty reasonable to us,” says George Pearkes, global macro strategist at Bespoke Investment Group.
For the Dow to hit 1,000,000 in
2117, it would have to post annualized gains of 3.87%. That’s not an unrealistic number, given that the blue-chip index of 30 stocks has gained 5.73% per year, on average, over the past century, according to Don Luskin, chief investment officer at financial research firm TrendMacro.
By that measure, Buffett’s longterm prediction may actually be conservative and could be pointing to a future where stock returns are less robust than they have been in the past.
“Dow 1 million would require less growth over the coming century than we experienced over the prior century,” Luskin says.
“In that sense, it’s not some extravagant rah-rah gesture of faith in America — it’s pessimistic! It says we can’t expect a future as good as our past.”
Stock prices are driven by economic growth and profit growth. And “as long as people keep having children and technology keeps getting better, the economy will grow,” says Brad McMillan, chief investment officer at Com- monwealth Financial Network.
Bespoke’s Pearkes ran a variety of simulations that looked at different rates of growth for both corporate profit margins and economic growth that got the Dow to the magic 1 million level. For example, if profit margins grow at
3% and nominal GDP (growth not adjusted for inflation) averages 5% over the next 100 years, the Dow would be at 1,026,434 by
2117, assuming the market’s current valuation remains constant. Similarly, if profit margins are higher at 8% and nominal GDP grows at only 4%, the Dow would climb to 1,051,245.
But tomorrow’s Dow stocks might look much different than today’s names, says Joe Quinlan, chief market strategist at U.S. Trust. “The Dow 100 years from now will pivot around firms that are leaders in artificial intelligence, robotics, space exploration, the mining of the sea, human genetics, longevity and the like,” he says.