The Dow at 20,000 in a year is now the consensus forecast
Get your "Dow 20K" hat ready now?
The Dow Jones Industrial Average will trade above 20,000 in a year, according to a bottom-up analysis of the blue-chip gauge's stocks.
Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, has been tracking the company-level predictions submitted by Wall Street analysts for the Dow's 30 components.
Lumping together their average price targets for these companies and then weighting them appropriately, he says the "consensus 1-year target price" for the Dow industrials DJIA, +0.67% just reached 20,003.93 late Tuesday.
"This is the second sighting of 20,000," Silverblatt wrote in a note earlier in the week.
The Dow's consensus one-year price target previously reached that big round number back on July 28, 2015. That target didn't pan out, Silverblatt notes, as the Dow actually closed at 18,456.35 on July 28 of this year.
One problem with such bottom-up forecasts is they rely on a group that doesn't have a stellar reputation. Wall Street analysts often have been criticized for providing overly rosy projections and being reluctant to slap “sell” ratings on the stocks that they cover.
A one-year target of 20,003.93 implies a gain of 7.9% from Tuesday's close at 18,533.05. That finish on Tuesday left the Dow DIA, +0.68% just 0.3% below its July 20 record close at 18,595.03. Although stocks were zooming higher on Thursday, with the main indexes hitting or approaching fresh records.
The bottom-up target for the S&P 500 SPX, +0.49% is 2,380.68, according to Silverblatt, who has been called a "high priest of stats." That implies a gain of 9.1% from the broad benchmark's closing level on Tuesday.
Silverblatt previously has explained how stock-benchmark targets can come in two different flavors. One type is a bottom-up forecast based on combining projections from analysts covering the gauge's individual companies. The other is a top-down estimate usually supplied by a strategist or economist who hasn't dropped down to the company level.