The Dow Jones Industrial Average on Tuesday closed above 36,000 points for the first time, a milestone for the blue-chip index and a capstone on one of the best-known — and most ridiculed — stock predictions in market history.
In their 1999 book “Dow 36,000,” former Washington Post financial columnist James Glassman and economist Kevin Hassett famously forecast that stocks — which had begun to surge five years earlier as the internet boom gathered speed — would soon head into the stratosphere. Filled with the kind of populist prognostications that Wall Street pros generally avoid, the book urged average investors to climb aboard what the authors were certain would be an epic, and lucrative, run.
The rest, as they say, is history. The Dow crested around 11,700 in January 2000 before the dotcom crash and 9/11 caused stocks to swoon in 2001. In the ensuing decades, Glassman and Hassett were held up as a case study on the perils of predicting financial markets.
Some 22 years later, the 30-stock Dow added 139 points Tuesday, or 0.4%, to end the day at 36,053, a record. The broader S&P 500-stock index and tech-heavy Nasdaq also notched new highs, a sign investors are focusing on strong corporate earnings while shrugging off a, supply-chain disruptions, worker shortages and the ongoing threat from .
Such headwinds have slowed the nation’s economic growth of late, dampening a strong rebound earlier this year from the massive hit on consumers and businesses caused by the pandemic. Yet stocks have continued to thrive. The Dow is up roughly 18% so far this year, while the S&P 500 and Nasdaq have each risen more than 20%.
Fed to take the punch bowl away?
The good cheer could endure, according to Wall Street. Historically, November and December have been two of the strongest months for stocks, with the latter showing a positive return 79% of the time, BofA Global Research analysts noted in a new report.
Of course, as Glassman’s and Hassett’s book made abundantly clear, stocks’ past performance isn’t indicative of future results, while some analysts are now warning that financial markets appear frothy.
“Sentiment is again close to euphoric,” BofA Global Research said, noting that its long-term model yields a negative 10-year return for the first time since the very internet bubble that once made Dow 36,000 a laughingstock.
Perhaps the biggest near-term concern for investors is whether the Federal Reserve will move more quickly than expected to hike interest rates in an effort to shackle inflation. The central bank’s “cheap-money” policies, adopted after the 2008 financial crisis to shore up the economy, have helped fuel the more than decade-long rally in stocks.
But with the U.S. again on solid economic ground after rebounding from the pandemic and inflation nosing up, many expect the Fed to end the party.
“The big wildcard remains how ‘sticky’ inflation will be throughout 2022,” Ryan Detrick, chief market strategist at brokerage LPL Financial, told investors in a research note. “We think current inflationary pressures will abate over the next six to 12 months. However, if inflation is stickier than we are anticipating and the Fed is forced to aggressively respond early next year — first by potentially speeding up its tapering plans and then by increasing short-term interest rates — economic growth will likely be negatively impacted.”
Monetary policy makers will offer their latest readout on the economy on Wednesday, with many analysts expecting Fed Chair Jerome Powell to hint at the path for rates.
Despite the scorn heaped on Dow 36,000 over the years, its authors would go on to highly successful careers. Hassett, long an influential voice in Republican policy circles, in later years would serve as former President Donald Trump’s chief economic adviser and is today ensconced at the Hoover Institution, a conservative think tank. Glassman served as Undersecretary of State for Public Diplomacy and Public Affairs for George W. Bush and was the founding director of the former president’s institute, among other posts.
Glassman sounds philosophical in looking back on Dow 36,000, telling Bloomberg that he didn’t feel shadowed by the book. His only regret: “intimating that Dow 36,000 was going to happen soon, that is, within a few years,” he told the news service. “The late Alan Meltzer, a serious economist and student of the Fed who gave our book a very nice blurb, told me, ‘Never associate a date with a number.’ Good advice.”