Many economists have been warning that a potential recession was right at the corner, pointing to many variables and drafting theories. These included a potential passive-investment bubble, the deceleration of the global economy due to a supply-demand imbalance, and a potentially damaging aftermath of the ongoing (yet paused) US-China trade war.
Nonetheless, no academic could possibly predict a global pandemic such as the coronavirus outbreak as the ultimate trigger for a worldwide recession, and to be honest, who would?
So far, the major stock indices around the world have lost a significant portion of their value, with the DJIA falling by nearly 30 per cent, followed by the S&P 500 which has lost almost 28 per cent and the FTSE 100 whose value has dropped by 26 per cent since February 20, when the markets starting falling off a cliff with no signs of recovery on the horizon.
The question that’s on most people’s minds right now is: where will the Dow be in 2020? Or even worse, will the Dow Jones go up anywhere near its pre-coronavirus level in the near future?
At this point, anyone may probably get their Dow Jones predictions wrong, as the global economic aftermath of the coronavirus cannot be estimated while the crisis continues.
On the other hand, an analysis of the index’s components and its historical behaviour during and after certain crises could point investors in the right direction when it comes to drafting a potential Dow Jones index forecast for 2020.
Dow Jones: how high will it go?
The Dow Jones Industrial Average (DJIA) started the year returning a conservative 2.8 per cent from January 1 to February 19 with a relatively stable price trend that shows no major intraday peaks or bottoms.
Up until then, most analysts were relying on a positive short-term resolution of the US-China trade war that was, at that point, limiting the market’s expansion to higher levels, as trade tensions were putting a cap to the global economy by keeping corporate profits from growing further.
Additionally, from a 12-month perspective, the DJIA was delivering a solid 14.5 per cent annual return, while the S&P 500 returned nearly 20 per cent during that same period, again up until February 19.
The markets were happy and the rally was in full steam until February 20 came and concerns regarding the possibility of a widespread coronavirus outbreak took over the markets, sending them in a sharp downward spiral that hasn’t been reversed yet.
As a result, the Dow Jones lost nearly 30 per cent of its value since then, sending the index back to its 2016 levels and wiping out billions of dollars in capital gains in a little more than one month.
Right now, the DJIA annualised returns are on red territory (-16.81 per cent), while the index’s short-term three-month returns are even worse (-27.39 per cent).
Curiously, the index’s P/E ratio at this moment is 14.69, which is still on the mid-high end of valuations, while its dividend yield sits at 3.6 per cent.
So far, the index’s top losers in a three-month period include Chevron (CVX) which has lost 52 per cent of its value, American Express (-38.72 per cent), Boeing (-70.21 per cent), and Exxon Mobil (-50.77 per cent), while virtually none of the index’s stocks have shown positive performance during that same time frame, except for Walmart which has remained relatively stable, showing a mild loss of -0.7 per cent in the value of its shares.
Trade USA 30 - US30 CFD
Dow Jones outlook 2020
One important note when it comes to drafting a potential Dow Jones forecast for 2020 is the fact that it has taken the index between four and five years to fully recoup its previous pre-crash peaks after certain recent crashes such as the dot-com bubble of 2000 and the 2007-2008 financial crisis.
On the other hand, a Dow Jones index forecast at this point would be basically a shot in the dark, considering the overall economic turmoil the world is going through, even though some analysts have dared to share their views regarding what’s ahead.
Bruce Kasman, head of economic research at JP Morgan Chase, shared his thoughts on how to analyse the potential future of the markets by stating that, “The key outlook issue now is gauging the depth and the duration of the 2020 recession.”
So far, JP Morgan Chase is predicting that the US economy will shrink by about 14 per cent, while unemployment may reach 5.25 per cent by the end of 2020, and Kasman further expands his ideas by mentioning that “If a normalisation in activity from depressed levels takes hold midyear alongside building policy stimulus, the depth of the current downturn can be seen as a springboard for a strong snapback in growth.”
Kasman’s views are shared by many other analysts on Wall Street who are predicting a depressed economy and stock market for 2020, as long as the outbreak keeps going and any down-to-earth Dow Jones predictions 2020 must take these views into account.
Dow Jones predictions 2020
Every crisis is different and the coronavirus situation is far from being similar to any other crisis the markets have faced in the past.
Research shows that the dot-com bubble market crash ended up wiping 30 per cent of the DJIA’s pre-crash peak, while the 2007-2008 financial crisis sent the markets in a downward spiral that ended up vanishing 50 per cent of the DJIA’s pre-crash peak.
If the coronavirus outbreak turns out to be a much more severe crisis compared to those two, the US 30 forecast could expect that the index may go down by as much as 70 per cent from its pre-crash peak, which would result in a post-crash value of approximately 8,500-8,800.
While these levels seem implausible at this point, considering the Dow closed the latest session at 20,704 (as of March 25, 2020), these two recent market crashes clearly show that the index went down consistently for nearly two years before the trend was reversed.
The speed of the recovery will definitely be influenced by the amount of time that it takes to contain the outbreak on a global scale and by the impact of the potential economic measures implemented by the US and other countries to sustain their economies in the meantime.
Would you like to become a part of the market and make your own bets on the Dow Jones forecast 2020? Join Capital.com where all major financial markets are at your fingertips.