As 2019 unfolds, one question is likely on most investors’ minds: Is the bull market that began in March 2009 dead, or can it find its footing on less stable ground?
Last year brought on major waves of volatility, and the Dow Jones Industrial Average (DJIA) posted its worst December since the Great Depression year of 1931. With this much uncertainty, equity investors might think it is time to throw in the towel.
The DJIA index closed the year at 23,327.46, down 5.6% in 2018, after in 2017 it finished up about 25%. Similarly, the Standard & Poor’s 500 index finished 2018 down 6.2%, after gaining more than 19% the previous year. An alternative calculation for the Dow, represented by the so-called Diamonds ETF (DIA), in an effort to include the ever-important dividends, lost 7.4% in 2018.
Asking whether the bull market is dead will not yield any clear answers. Each year 24/7 Wall St. conducts an annual review of the 30 Dow stocks to forecast how the market as a whole would perform in the year ahead. This year, the analysis has provided a somewhat contrarian outlook, especially in light of recent market volatility and expected headwinds in 2019.
This approach of considering consensus price targets for each of the 30 Dow stocks has yielded a preliminary target of 28,000 for the DJIA in 2019.
There are many forces that could affect financial markets, the economy as a whole, as well as each stock. The markets will have to contend with the United States resolving international trade issues with China, a continued tempering of trade hostilities within the old NAFTA, Brexit, a Federal Reserve that wants to keep raising interest rates, and a potential inversion of the yield curve.
24/7 Wall St. has some serious concerns entering 2019 in using an analyst-driven consensus forecasting model alone, even if it has been useful in prior years. It is likely that many analysts have yet to take into account broader headwinds and have not yet adjusted down their price targets accordingly, especially considering how far off their highs many of these company stocks closed at in 2018. Still, a preset model is merely a means of calculation, and it allows investors to judge the state of the overall market.
With a projected price increase of 20.2% on top of the 23,327.46 close of 2018, the current model forecasts the Dow would rise to 28,039.60 in 2019. Let us call it 28,000 for rounding purposes. Considering dividends in the implied upside calculations, the Dow would climb 22.8% to 28,669.