The Dow Jones Industrial Average may be an antiquated index, but it is also how the public still mostly judges “the stock market” for its gains and losses. With the Dow having punched through 23,000 and then 23,100 on Wednesday like there was not even a speed-bump to slow the trucks down, 24/7 Wall St. wanted to evaluate what the overall market picture looks like ahead from a risk-reward basis.
Before sticking to anything formal, it still feels way too early to make 2018 year-end predictions. After all, third quarter earnings season is not yet finished. Tax reform , repatriation, and lower financial regulations have yet to work their way into the investing models. And the 2018 mid-term elections are still more than a year away before we know if there will be a changing of the guard for which party controls the House and Senate in Washington, D.C.
After looking through the 30 Dow stocks individually and after using our same forecast and evaluation tool metrics used for years now, the tea leaves of October 18, 2017 are pointing toward the Dow going way over 23,000 from today to go over well over 24,000 or even 25,000 over the coming year.
Be advised — This is not a formal prediction at this point and we are not making any official 2018 targets yet. That being said, when the DJIA was not even at 20,000 our same method for Dow forecasting generated a year forward projection of just 21,422. The market is now almost 2,000 points north of that original forecast.
After looking through or updated price matrix, there are still only 5 of the 30 Dow stocks that have a current share price that is above the consensus Thomson Reuters analyst price target (mean price). Even if we include the 5 “overvalued” stocks there is an average upside of almost 6% for the full list of 30 Dow stocks. Also worth noting for index total return expectations, the media Dow dividend is almost 2.4% and the average Dow dividend yield is 2.57%.
The Dow stocks with a share price above the consensus analyst target, without considering the dividend for a total return, are as follows: 3M, AmEx, Caterpillar, IBM, and Travelers. And if you add in the dividend for a total return with the expected consensus analyst target prices for upside, the only Dow stocks with an expected 10% upside were as follows: Walt Disney, UnitedHealth, Pfizer, Nike, Merck, GE, DowDuPont, and Apple.
As of Wednesday’s close, and using very rounded rough estimates there is close to 8.5% expected upside for the Dow with a 12-month outlook. The Dow closed up an unofficial 159 points at 23,156.84.
An 8.5% rally from this point would generate an implied level of 25,125 on the Dow this time in 2018. This may seem crazy considering that there have been only very limited stock market sell-offs so far since the November 2016 election, but the Dow now only has to rally 3.6% more to hit 24,000.
Again, it is too early to come out with any forecasts for the Dow in 2017. The estimates and targets will all undergo some changes ahead as we get deeper into the fourth quarter of 2017 and there are many unknown outcomes still pending in Washington.
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Key research efforts behind and around the Dow’s eclipse of 23,000 were seen as follows:
- Wednesday’s top analyst upgrades and downgrades were in Chevron, Chipotle, Exxon Mobil, Goldman Sachs, GoPro, IBM, Merck, Petrobras, UnitedHealth, Visa, Zynga and about two dozen more companies.
- Are analysts missing the boat on IBM after earnings?
- Analysts are chasing their Johnson & Johnson targets up, up, and away.
- Why investors are over-emphasizing GE’s upcoming earnings as a game-changer.
- 4 lagging DJIA stocks could be big winners for 2018.
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