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Last June I made an observation that the Dow Jones Industrial Average would hit 60,000 at a time when it was trading at only 21,171.57 – a seemingly incomprehensible 183.4% increase.
Yet here we are.
The Dow closed at 26,392.79 last Thursday, a new record high in a string of an unprecedented 10 records recorded in 2018 already.
And 60,000 still seems incomprehensible to most investors.
Not if you do the math.
Hitting 60,000 by 2027 – 10 years on – is not only feasible, but highly likely. In fact, getting there from here requires a compound return of just 9.56% over the next nine years.
All the ingredients are there:
- Low interest rates rising at a snail's pace
- Strong, synchronized growth for the first time since 2010
- Even stronger corporate earnings, especially in the world's primary markets
All three are capital attractors.
That's important because the S&P 500's dividends are 100.12% higher than 1999, and earnings are accelerating at a much faster pace.
The notion that markets are expensive just doesn't hold up. In fact, investors today are getting far more for their money than they did back then.
The other thing to consider is that stocks like those we follow are actually undervalued because they have the ability to grow into current prices – the "P" in PE. Some of our Unstoppable Trends – technology, defense (war, terrorism, and ugliness), and medicine, for example – all have pricing power and margin control. Widget makers don't.
There's also plenty of money still on the sidelines. I know that's hard to believe, but the rally we've enjoyed since the March 2009 lows has been driven largely by institutions, not individuals. Main Street has yet to get in on the action but is increasingly compelled to do so.
BlackRock Inc. (NYSE: BLK), a global investment management corporation with $5.7 trillion under management, estimated back in 2016 that there may be $50 trillion in cash piled up because people are scared of the current economic and political climate. My own calculations place the figure at roughly $45 trillion these days – but that's splitting hairs.
Moving just 1% of all that money into global markets would result in huge demand for every asset class. You don't exactly just mosey on over to your local brokerage with $500 billion and expect to get a deal… so prices go up as stocks, bonds, oil, and damn near everything else absorbs the demand.
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That kind of money is like the tide coming in. No matter how the markets gyrate in the short term, the path of least resistance is higher over time.
Instinctively, I know that's a hard concept for many investors to understand, let alone have faith in. But, emotions aside, history is very clear on the matter. The Dow went from 68.13 at the turn of the century in 1900 to close out at 11,357.51 on the first trading day of 2000 – a staggering 16,570.35% gain of 11,289.38 points.
The world's central bankers will see to it by creating money out of thin air to preserve liquidity. In that sense there's no limit to how much money they do or do not have. Nor are there boundaries when it comes to spending limits.
I run into a lot of investors who think this isn't possible because there isn't an account or accounts holding all that cash.
And they're right, there's not… just accounting.
Take the Fed, for instance.
About the Author
Keith Fitz-Gerald has been the Chief Investment Strategist for the Money Morning team since 2007. He's a seasoned market analyst with decades of experience, and a highly accurate track record. Keith regularly travels the world in search of investment opportunities others don't yet see or understand. In addition to heading The Money Map Report, Keith runs High Velocity Profits, which aims to get in, target gains, and get out clean. In his weekly Total Wealth, Keith has broken down his 30-plus years of success into three parts: Trends, Risk Assessment, and Tactics – meaning the exact techniques for making money. Sign up is free at totalwealthresearch.com.