The Dow Jones Industrial Average (DJIA) plunged yet again today to close at 7,997. This is the lowest level in over 5 years. We’ve seen the start of the correction in the real estate market, and now we are seeing the start of the correction for the stock market (which has been over priced for more than a decade). My analysis suggest that the DJIA will sink to roughly 5,000 (+/- 500) before there can be any sustained long-term growth.
Most bubbles eventually correct back to where they started. The bubble that began in 1922 gave back all its gains by 1933, and the bull market that started in 1949 gave back almost everything by 1982. The bubble that started in mid-1980s is still deflating and probably will do so for the next decade.
The market does NOT always go up in the long term. The stock market averages about 1.5% per year when adjusted for inflation, and may take decades to recover from a large decline. Based on Inflation Adjusted DJIA data, the peak in 1929 was not ultimately exceeded until 1992. That’s 63 years of only keeping up with inflation, with no additional gains (except for dividends, which isn’t much).
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