As for the methodology, 24/7 Wall St. calculated the perceived upside including dividends for each DJIA component based on the consensus analyst price target from Thomson Reuters at the end of 2014. We then dropped the price-weighting of the DJIA and assign an equal-weighting on all components, after we averaged the upside and downside of all DJIA stocks. Despite the DJIA being price-weighted rather than cap-weighted like most other indexes, our view is that analysts have tended to get the broad direction right when you tally up all 30 DJIA stocks. Unfortunately, their analysis and expectations are often very off when it comes to each individual DJIA stock and its outlook for a year ahead.
So the average expected gain of about 7.4% in 2015 would imply that the DJIA could rise to roughly 19,142.
We also have included what the average gain in the S&P 500 Index is expected to be, according to Wall Street strategists. The average of the 13 targets below came to 2,216, which would imply a gain of 7.6% from the 2,058.90 closing price for the index at the end of 2014. Those estimates from each firm are as follows:
- Barclays, 2,100
- BMO Capital Markets, 2,250
- Citigroup, 2,200
- Credit Suisse, 2,200
- Deutsche Bank, 2,150
- Goldman Sachs, 2,100
- J.P. Morgan, 2,250
- Merrill Lynch, 2,200
- Morgan Stanley, 2,275
- Oppenheimer, 2,311
- RBC, 2,325
- UBS, 2,225
- Wells Fargo, 2,222
It seems a bit odd that the S&P 500 targets would imply a gain of 7.6% at a time when the methodology we use for evaluating the DJIA implied called for a gain of 7.4%. So, how has this effort compared to actual market returns in the past years? We have a montage here:
- In 2014, the methodology indicated DJIA gains of 3.2%, prior to dividends, or just under 6% with the dividends. The DJIA gained 7.5%.
- In 2013, the DJIA massively outperformed expectations, finishing the year much higher than the estimate of 14,590. This was the year that this methodology called for 11.34% gains, but the DJIA gain was 26.5% before dividends (and 29.6% for the S&P 500 Index, before dividends).
- In 2012, the peak of 13,661.87 in the DJIA, compared to our projection of 13,678.
- In 2011, the methodology called for a blended peak consensus of 13,042.06. While the DJIA closed 2011 up 5.5% at 12,217.56 for the year, the index’s peak that year was 12,928.50.
- In 2010, the methodology called for a target of 11,455, and the DJIA closed out the year at 11,577.51.