Super Boom Update: Not Much Upside Expected Next Couple Years
By: Jeffrey A. Hirsch & Christopher Mistal
March 17, 2016
Céad Míle Fáilte! Happy Saint Patrick’s Day to you all! In honor of the patron saint and since we cannot deliver corned beef and Guinness to you digitally yet, our gift to you today is an update of our Super Boom Forecast that we first released in May 2010 for the market to make a 500+% move by the year 2025, or DJIA 38,820, which is a six-fold gain from the intraday low on March 6, 2009 of 6470.
The main reason to update this pattern and outlook, other than it’s that time of year and we like to reevaluate this on an annual basis, is that the market is tracking eerily close to our forecast. This also plays into our outlook for this year, which has been “less than sanguine” since we completed our first 2016 outlook on page 6 of the Stock Trader’s Almanac 2016 on June 2, 2015. 
Upon further review in our December 17, 2016 Annual Forecast, we reaffirmed our expectation for “tepid gains” this year and that, “The next bear market may begin in 2016 and could take the market 20-30% lower into 2017-2018 in the last cyclical, garden-variety bear market that finally puts an end to this secular bear that began in early 2000. We do not expect much upside over the next few years in the market. But after the next bear market our Super Boom forecast should kick in.
Well, we have had that bear market, at least by our and Ned Davis Research’s standards and will likely be in store for more downside action over the next couple of years before reaching significant new highs on the major U.S. market indices. In the short term we expect some typical end-of-March, end-of-Q1 weakness. Then the market should to rally into the end of the “Best Six Months” to just shy of the 2015 all-time highs in April/May, followed by weakness into the summer around the presidential conventions.
Once we have only two candidates and a final winner, some uncertainty will be removed and the market will likely rally into yearend as the last seven months of election year have suffered only two losses since 1952 (STA 2016, page 32), however, once again falling short of new highs and leaving 2016 basically flat. For 2017-2018 we expect some rather rough market action with a retreat to the area of the 2007 highs on the DJIA and S&P and 3500-4000 NASDAQ.
That’s right; we are one of the few who believe that we are still in a secular bear market. People seem to forget that secular bull and bear markets do not begin and end at their highest and lowest points. Most agree that August 1982 was the end of the last secular bear market, not October or December 1974.
Back in 2011 when my book Super Boom: Why the Dow Jones Will Hit 38,820 and How You Can Profit From It (Wiley) hit the stores I drafted a bold 15-year DJIA projection chart. This forecast does not anticipate DJIA reaching 38,820 until around the year 2025 – and for the current secular bear market that began in 2000 to drag on until 2017 or 2018 before the next boom and secular bull commences. 
[500% Moves Follow Inflation]
As DJIA has pushed substantially above the high range of that chart (not because of a massive global economic boom or peace, but because of unprecedented easy monetary policy), I raised the floor on my initial forecast a few times. The end game still is in play and the means to the end has only been elevated to account for this new easy money world. 
When I first made my super boom forecast in May 2010 in this space DJIA was around 10,000, unemployment was quite high, the great recession was barely in the rearview, and global debt was a new and growing concern. So my prediction that the Dow would reach 38820 by 2025 seemed absurd to many when we announced it. That came as no surprise—all bold predictions are first lambasted before proven true. This super boom is not only plausible, but mathematically and historically within reason. Now that DJIA has exceeded 18,000 it looks even more credulous.
As for the next Super Boom already being underway, we are not convinced just yet. The low point of the economy and the bottom of the stock market now clearly appears to be behind us. But other factors have yet to align. The war on terror is still raging, a paradigm shifting technology has yet to emerge and inflation is subdued. Sorry, but 3D Printing and Fracking are not likely to change the world for the individual consumer like the car or the PC did. CPI has risen just 34% since 2001 and has not budged in the last several years. We are still plagued by political dysfunction and the next administration is likely to have a rather tough go of it before we can get back to some real bipartisan leadership and policy initiatives.
This projection is based upon 50 years of research and analysis into stock market cycles, patterns and seasonality. When I drew it in March 2011, I anticipated that the market would at least challenge its previous all-time highs before failing and falling to a low in midterm election year 2014 and another low in 2017-2018 before the next super boom truly began. That was based upon a projected high of 14,000 and an above-average bear market loss approaching -40%. 
I used the final cyclical bear markets of the last secular bears ending in 1921, 1949, and 1982 along with the long-term support level around 8,000 from the post-9/11 lows, through the 2002 and 2008-2009 bear markets as the basis for the potential magnitude of this decline. Now that DJIA has exceeded the high end of my range, the 2018 midterm low is likely to be higher, likely in the DJIA 14,000-15,000 range or a 20-30% decline from expected high point levels. The orange line in the chart below illustrates the updated forecast. (Click here for the previous projections
While we are projecting a garden variety bear market of -20-30% to bottom sometime in the 2016-2018 timeframe, early signs of the end of the secular bear and coming Super Boom have begun to materialize presently. The commodity secular bull market since 2000 has waned and the 30-year bull market in bonds that began near the end of the last secular bear for stocks in 1980-82 looks to be finally fading. 
In addition, new market leaders are rising to the top and we may get our next paradigm shifting culturally enabling technology from Biotech, Healthcare or perhaps robotics or alternative energy. But that remains to be seen. Either way, continue to let your winners ride and enjoy the rally while it lasts, Just be prepared for gains to be less easy to come by over the next few years while the stage is set for the Next Super Boom and secular bull market.