SIEGEL: Here's Why The Dow Can Get To 18,000 By The End Of Next Year
One of the most well-known stock market bulls is Wharton professor Jeremy Siegel, who is known for his long historical analysis of stock market returns.
Siegel and his assistant Jeremy Schwartz (who is the research director at the ETF company WisdomTree, which Siegel is involved with) are the subject of a Barron's piece this weekend about how high the Dow can get in the next couple of years.
Their answer? 15,000 this year looks easy. The 16,000-17,000 range is also possible. And there's a 50/50 chance of Dow 18,000 by the end of next year.
How do they arrive at these numbers?
Basically Siegel and Schwartz take Dow returns going back to 1871, and chop up the market into rolling 5-year periods. The median return over any 5-year period is 9.41 percent. The worst return is 15.6 percent. As of this year, despite the 4-year bull market rally, the current 5-year return has been in the lowest third of all 5-year periods. Then in the 2-year period of returns following the lowest of all 5-year periods, the median return is 14.59.
The final math ... drum roll ...
To apply that 14.59 percent to the Dow, we first subtract 2.48 percentage points for dividends, leaving a median price return of 12.11 percent a year. Grow the Dow at 12.11 percent from the March 5 close of 14,254 — the final number in our last five-year interval — and you get 17,915 within two years.
Voila!