Dow 100,000?

November 1, 2019

Recently, the Dow Jones crossed 27,000 and investors marveled on how this was possible.  Is it conceivable that we would see Dow 100,000 in our lifetimes?

The Dow has been jumping in 1000-point increments in short order and the media is having a field day claiming its going up faster than ever.  But, on a percentage basis, the Dow’s rise isn’t doing anything completely out of the ordinary.  After all, a move from 26,000 to 27,000 is not the same as a move from 10,000 to 11,000.  One is a 3.8% move and one is a 10% move.  I’ll let you figure out which one is which.

The Dow Jones Industrial was first calculated in 1896 by Charles Dow and stood at 36.  It’s comprised of 30 industrial companies meant to capture the U.S. economy and how the general stock market is doing.  Since its inception, there have been many changes to the components of the Dow Jones.  In fact, the last original member of the Dow Jones Industrial Average, General Electric, was removed as a member in 2018.  The Dow Jones does have some flaws in its calculation compared to other indices such as the S&P 500.  It’s a point weighted system rewarding more points of the Dow if a stock has a higher price.  The S&P 500 on the other hand is a market cap weighted system.  It ignores price and looks at the overall market capitalization of the company to determine weight of the index.

Over the years, the Dow has seen some wild moves, but it’s still served as the most popular mainstream indicator of the health of the stock market.  During the Great Depression, just a few years after the Dow Jones was created, it fell 90%, but eventually recovered many years later.  It went on to finally surpass 1,000 in 1972 for the first time.  Through the 1960s and 1970s, the Dow was essentially flat with a tremendous amount of inflation.  Falling interest rates and a good economy in the 1980s and 1990s propelled the index above 10,000 in March 1999.  What seemed inconceivable a few years before finally happened.  In 2016, the Dow Jones reached 20,000, doubling in 17 years.

Sitting around 27,000 recently, it’s possible we see the Dow rise to 30,000 soon.  What about 50,000?  Does that seem impossible?  Based on history, many of you reading this article will see the Dow Jones cross 100,000 in your lifetimes.

Since its inception, the Dow Jones has annualized a price increase (without dividends) of approximately 5.5% since 1896.  If it simply continued that pace, the Dow would cross 100,000 in approximately 23 years!

Dow 100000

-At an approximate pace of 15.3%, the Dow Jones would cross 100,000 in 8.5 years.
-At an approximate pace of 6.96%, the Dow Jones would cross 100,000 in 18.5 years.
-At an approximate pace of 4.50%, the Dow Jones would cross 100,000 in 28.5 years.

(These returns are from 9/30/2019 and are using quarterly compounding and does not include dividends)

The Dow Jones does pay dividends and the total return that investors have realized is much higher than the 5.5% increase per year.  But, just on a price basis, Dow 100,000 is closer than you think.