The Dow Jones will eclipse 100,000 on a 'turbo booster' combo of earnings growth and Fed rate cuts, Wall Street CIO says

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  • Interest rate cuts and continued earnings growth will power the Dow Jones to above 100,000 within the next decade.

  • "Stock prices love strong earnings and lower interest rates," Main Street Research CIO James Demmert said.

  • Demmert said investors should overweight technology stocks on a continued AI boom.

A powerful cocktail of earnings growth and interest rate cuts will serve as a "turbo booster" for stock prices and power the Dow Jones Industrial Average to over 100,000.

That's according to Main Street Research chief investment officer James Demmert, who outlined a seven- to nine-year timeline for his uber-bullish stock market call.

"Our main message to investors is to stay focused on the fact that earnings and Fed policy drive stocks and both are extremely favorable as stock valuations are cheap relative to forward earnings. Investors should be fully invested up to their highest need for stock allocation so that they can leverage the early phase of this new and powerful bull market," Demmert said in an e-mail to Business Insider on Monday.

Demmert's long-term stock market forecast represents potential upside of 160% from the index's current levels.

In the shorter-term, Demmert sees the S&P 500 rising to 6,000 by the end of the year, representing potential upside of about 10% from current levels.

"The recent pace of weaker inflation data suggests lower rates and bond yields in the second half of the year, and that makes stocks more attractive," Demmert said.

The Federal Reserve is expected to cut interest rates one to two times this year, with the market currently expecting the first rate cut to occur in September.

And if the Fed doesn't cut interest rates this year, that won't derail Demmert's bullish forecast because earnings growth remains strong and resilient.

"Earnings alone can propel stocks higher, however recent inflation data and Fed commentary suggests that at least one rate cut is likely before year-end, and that would be a powerful tailwind to an already strong corporate earnings situation. Stock prices love strong earnings and lower interest rates," Demmert said.

Additionally, Demmert highlighted that trillions of dollars of cash on the sidelines should make its way into the stock market over the next six months as interest rates drop and some investors start to feel "FOMO" after missing out on the stock market's ongoing march to record highs.

And it's not a bad time to buy stocks now, even at record highs, as the median stock valuation is trading at about 16-times forward earnings.

"Yes, the AI tech stocks trade at much higher multiples than most stocks - but deservedly so given their premium growth rates," Demmert said.

As to how investors should position their portfolios to benefit from a potential multi-year bull market, Demmert highlighted stocks found in the technology, telecom, healthcare, financials, industrials, energy, and materials sectors as favorable corners of the market.

"We believe we have entered a new AI and tech-led business cycle and bull market so it's essential that investors position themselves to be overweight in technology and telecom stocks," Demmert said.

While Demmert's prediction for the Dow Jones to trade at 100,000 within the next seven to nine years might sound "pie-in-the-sky," it wouldn't be out of historical norms if it did occur.

The stock market has historically grown at an average annual rate of 10%. For the Dow Jones to hit 100,000, it would need to grow at a compounded annual growth rate of 11.2% over the next nine years.

Read the original article on Business Insider

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