It goes without saying that investing in the stock market comes with its fair share of risks. After all, the market ebbs and flows with such irreverence that what seems promising on Monday could already be on the downswing by Tuesday, with the opposite also holding true. Yet, for all its uncertainty, it historically follows a general trend of gain, an expectation that those just creating their retirement portfolios hope holds true in the future, especially those who select to be among the high-risk, long-term time period.
As such, making solid predictions on the performance of the broader market as a whole is generally an educated guess at best, as low-lying companies can come up from the woodworks and surprise investors with suddenly high prices, while sure favorites can just as easily fall short.
One of the most telling and thoroughly researched metrics is the Dow Jones Industrial Average, or DJIA. Put simply, the DJIA measures the price-weighted averages of 30 major stocks curated from the Nasdaq and the New York Stock Exchange, or NYSE. Invented in 1896 by Charles Dow and named for Dow and his business partner Edward Jones, it’s globally recognized as one of the most prominent indices. It is what most reporters are referring to when they take note of “the market’s” performance that day.
Originally, the index only consisted of 12 industrial companies, including General Electric. Today, the only one remaining from the original lot is GE. Now, it’s comprised of heavy hitters including Walt Disney and Microsoft Corporation among others. It’s calculated by a price-weighted model, meaning that stocks with a higher share price are more prominent. When it was first created, Dow took the prices of the original 12 stocks, then divided that sum by 12 to achieve the average.
For decades, tax planners and financial experts have sought to forecast the DJIA for an entire year’s term. Bearing in mind that conditions are set to change at any given second, there are three predominant schools of thought concerning how the DJIA will fare in 2019. Here are a few directions it could go in.
A Single-Digit Increase
When reporters first began posing the question of the index’s annual performance, these inquiries were conducted back in October. At this time, the market was still recovering from its sudden and sharp fall, which left many investors reeling, most with cautious predictions. They were reading the local news updates, including index-specific data released from outlets including DJIA Today, and seeing the numbers updated in real time.
This wariness was only exacerbated by shaky relations between the United States and China, which threatened trade relations, ultimately creating challenges for some of the major players in the DJIA that relied on seamless and quick trade to facilitate their worldwide operations.
Thus, at that time, most financial experts polled put the DJIA closing at right under 27,000 at the end of this year, only a single-digit percent up from its current point.
Predictions Before the October Fall
Only a few months before the broader market took that dramatic dip and fell more than 300 points that October, optimism was more prominent and investors were more willing to predict a higher conclusion for the DJIA. At this time, around August of 2018, they predicted it would close at just under 29,000 instead, a number that fell more than 6% just a short while later.
Yet, while the market hadn’t yet fallen, trade relations were still shaky at best. So, why the uptick in expectation? Some would argue that at that time in late summer, interest rates were still moderate and hadn’t spiked to the point that they’re now at. As soon as that began to change, right before the end of the year, concerns and anxieties over another recession began to grow, which resulted in a lower average prediction for the DJIA as a whole.
Could It Dip Further Than Expected?
Though the post-October predictions for the DJIA dropped from experts’ initial reactions, there are others who suggest even 27,000 is too high of an estimate and that 24,000 is more likely. This school of thought stems from the fact that interest rate spikes haven’t been fully implemented just yet, but are expected to be enacted throughout the year. At the same time, global partnerships and trade agreements continue to tighten, leaving many business owners wondering how to proceed with international deals and negotiations.
Could this be the year that the bull market switches to a bear? Possibly, though if the downturn occurs early enough in the year, there should be plenty of time for the market to react and ultimately bounce back, setting itself up to fall again in 2020.
Predicting the Unpredictable
As a whole, though it’s helpful to read stock market analyses and learn as much as you can about the sector, keep in mind that these projections are exactly that. They’re estimates and hunches crafted through a combination of historical data, trends and personal opinions.
Staying abreast on hot-button issues, joining in conversations concerning the industry and seeking advice from a trusted financial planner can be a great way to help savvy investors understand how the DJIA is performing, why it’s moving in that direction and what that means for them.
