Dow Jones (DJI) – Forecast Summary

After a bumpy 2020, this year has started incredibly strongly for the Dow Jones (DJI) and across the board, stock markets have been incredibly bullish.

The main story for all markets has been the coronavirus and the widespread impact that lockdowns and social distancing have had on the economy. While we saw a very steep sell-off in early 2020, the v-shaped recovery has been equally impressive, if not more so.

In fact, the Dow Jones (DJI) has benefited quite significantly from the coronavirus both in terms of the actual businesses that make up the Dow Jones (DJI) and also from a move towards solid assets and those that do produce yield.

One of the big differentiators about the Dow Jones (DJI) is that these companies do pay dividends as they are largely well-known very established companies. As a result, a dividend yield of 4-5% is very appealing to investors in search of passive income.

In terms of the Dow Jones (DJI) price prediction, the outlook is bullish given the economy is improving at a rapid pace. However, after such a strong bull run we must be cautious about a potential correction in the short term.

After look weak for only a short period of time, we can see that price has rebounded back to record-high levels of around $35,000. While this trend is in place, the outlook for the short-term is bullish, with an upside target of $40,000. However, we must be cautious that If the trendline breaks, we could see a sharp correction.

Dow Jones (DJI) Price Prediction for the Next 5 Years

The Dow Jones (DJI) price prediction for the next five years is once again a bullish one. Over the past 12 months alone, the Dow Jones (DJI) has rallied incredibly strongly from the bottom in March 2020 of around $18,200.

Given the huge run that we’ve seen over the last year, it does remain unlikely that those levels of returns can be sustained for another 12-24 months. Generally speaking, indexes and stocks, in general, see short periods of high returns, followed by periods of consolidation and smaller gains.

Looking to the next five years, I believe the Dow Jones (DJI) will continue to gain ground with the 50,000 level not out of the question in that period of time. In fact, 50,000 is almost a 50% gain from where the index currently sits and as the global economy improves, the likelihood of more upside also remains high.

Recent Changes in the Dow Jones Price

Dow Jones (DJI) Big Companies Benefiting from Coronavirus

It’s no secret that the large corporations of the world were the biggest winners from the coronavirus.

To highlight why the Dow Jones (DJI) was a big winner it’s important to understand that the index represents the 30 of the largest listed companies in the US. The types of companies that make up the Dow Jones (DJI) include Apple, Coca-Cola, JP Morgan, Nike, Visa and others.

Many of these companies did see an impact from the coronavirus as retail sales slowed down and the likes of major banks were forced to defer mortgages in many areas. However, none of these companies went out of business. In fact, most only saw a weak quarter or two of earnings and now the outlook and earnings are continuing to get better.

In effect, many of these companies benefited as their competition (smaller businesses) were taken out and forced to close down. The likes of Walmart barely missed a beat and continues to see very strong sales numbers.

The other major factor that benefited these larger companies is the flight to safety and investors seeking yield. The first things central banks did in March/April of 2020 was slash interest rates to record low levels. That has had a huge impact on bond yields and savings accounts of many investors and as such, they are forced to seek a return on investment.

While a number of companies in the Dow Jones (DJI) have seen their dividends drop, there are still many with yields in the 3-5% range, which compared to bonds and bank interest is not insignificant.

While central banks obviously cut rates, the other big monetary policy weapon they have been using is bond-buying (QE), which is effectively just money printing. As we know, if you print money you are effectively devaluing your currency and creating inflation.

The net effect has been a huge steam of money pouring into assets like blue-chip shares and property. The Dow Jones (DJI) is basically an index of blue-chip stocks that are somewhat able to withstand an economic downturn – making them particularly appealing in the current environment.

Dow Jones (DJI) – Bubble Bursting

The main risk to the Dow Jones (DJI) in my mind continues to be a correction in price. We have seen a big rally of over 50% from the March 2020 lows in what has been a near-perfect v-shaped recovery.

What we’ve been seeing over 2021 alone has been a big contraction in the level of volatility. Generally speaking, volatility moves from periods of high to low and vice-versa. Now that we are back at volatility levels not seen since pre-virus, that suggests we are due for a pullback.

The trigger for the pullback is the thing that we really don’t know about. We could see a signal from the FOMC that rates will rise. We could see adverse effects from vaccinations start to gain more widespread attention. At the moment, we are also hearing a lot about conflict between China and Taiwan and also Russia and the Ukraine. 

Any one of these events could be the catalyst for a sharp sell-off and I suspect the odds of that happening are very high in the next three months.

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Dow Jones (DJI) – Political Uncertainty

The political landscape in the past 12 months has changed dramatically and we are starting to see more political uncertainty than any time in the past decade.

The 2020 US Presidential election has been marred by widespread election fraud and we are still hearing about issues surrounding Dominion voting systems and mail-in ballots.

For whatever reason, many of the big companies in the US, including Coca-cola, Salesforce and Walmart are weighing in on what happened during the election and also the implication of requiring ID to vote and to submit absentee ballots. This is an interesting development and it is causing many people to take issue with these companies.

Given the political climate, it seems a strange move from many of the largest companies in the US to take a political stance. Realistically, these companies should probably not be entering the political arena. There is a big risk here of consumers boycotting many of the companies that are trying to prevent voter ID laws.

Technical Analysis

Currently, the Dow Jones (DJI) is sitting at record high levels around the 35,000 level. 

Looking back to the March 2020 crash and we can see the index fell to 18,000. The rebound from that point has been a 90% gain, showing just how remarkable the last 12 months has been for stock markets.

We can also see that there are some key level that price struggled with as the index recovered. We can see on the chart that between 26,000 and 28,000 there was significant volume that traded as well as numerous times each level acted as both support and resistance.

Prior to the virus-induced crash, the prior highs were around that 28,000-29,000 level, which is one reason it acted as strong resistance on the way back up.

In the short term, could we see a price correction, I believe it is that same 26,000 and 28,000 level, which represents a 24% fall from current levels that would be a very obvious downside target in the short term.

On the flip side, the bull run that we’ve been seeing all year could very well continue as it has been. These slow grinding runs have a tendency to keep on pushing higher and it’s often the bears that are the ones that lose out.

With that in mind, the next two clear round number levels ahead are 35,000 and 40,000. The probability is far greater than we only get as far as the 35,000 level. We’ve just seen such a big run in price as mentioned with the 90% recovery, that stocks are clearly very extended at the moment. Price is currently sitting on $35,000, having tried to reach this point only weeks ago.

Longer-term, I believe 50,000 is an obvious point for a Dow Jones (DJI)  price prediction, given that it is only about 50% higher, which would represent less than 10% annual growth going forward. That would be a level of growth that is in keeping with what we’ve seen in history.

For the time being, with low interest rates and money printing looking like it is the norm, I suspect we will see a further inflating of asset prices. However, traders should be expecting a price correction in the short term.