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March 28, 2012 at 09:24 AM
An important rule for stock prognosticators is: “Never tie the Dow to a specific date,” which author and former Washington Post columnist James Glassman once told AdvisorOne.
Stuart Freeman didn’t get the memo. Following on Harry Dent’s famous prediction during the last economic expansion that the Dow would hit 40,000, and Glassman’s own book titled Dow 36,000, Freeman, chief equity strategist with Wells Fargo Advisors, rings in with the much more modest bet that the index of large-cap industrials will double in the next decade.
Freeman looks into what happened to the S&P 500 after past bull markets turned three years old, a stage that—although it might not feel like it—is a point at which the economy presently resides. In each bull market since 1973, the average forward 10-year return from three years into five of these cyclical bulls was 147%. The median was 162%. The 10-year returns ranged from between 57% (for period from 1973 to 1983) and 194% (for the 10-year period between 1985 and 1995).
“The history of the last 40 years points toward a decade of favorable returns for stocks, even if the count starts three years into a cyclical bull market (which is where we are today),” Freeman and co-author Scott Wren write. “Long-term investors should take particular notice of this potential, particularly, given the relatively low P/E valuations today, low inflation expectations, the generally soft consumer sentiment and the investor public’s very cautious attitude toward stocks.”
