Forecast of Top Index Funds – Long View Till the 2030s

ETF Review and Outlook for DIA, SPY and QQQ

A review of the top index funds paves the way for a coherent approach to forecasting and investing in the stock market. From a pragmatic stance, the choice vehicles lie in the exchange traded funds for the leading benchmarks of the bourse. The latter consist of the Dow Jones Industrial Average, the S&P 500 index, and the Nasdaq 100 yardstick. For these stalwarts, the tracking funds take the form of DIA, SPY and QQQ respectively.

Within the tangible economy, the conditions have not changed a great deal since the Great Recession. On the downside, the politicians of the West went out of their way to solidify the distortions in the housing sector that emerged en route to the financial crisis of 2008. A showcase of bungling involved trillions of dollars in bailouts for gutted banks that had succumbed to their own reckless schemes. In this way, the pols kept alive some of the biggest and most unproductive firms in the economy.

The struts put in place also prevented the property sector from shedding the mountain of blubber it had built up during the housing bubble that led to the financial fiasco. Given the enormity of the shackles imposed, the economy as a whole was consigned to wheeze and limp at least until the 2020s.

In this shaky environment, the prospects for the industrial nations are lackluster at best. A glaring example lies in Europe which continues to wallow in the doldrums. Given the torpor of the senescent regions, the emerging markets of the world are fated to slog ahead mostly on their own power.

Luckily for investors, though, several factors have softened the blows dished out by the politicos. One tonic lies in the bloom of the world economy, along with the swell of profits for global firms ranging from Apple and Boeing to Google and Visa. Another boost comes from the revamp of the U.S. tax code in 2017 along with the surge of corporate earnings to follow.

Better yet, vanguard firms make deft use of digital technologies ranging from online platforms to smart agents. The crank-up of productivity by the spearheads has enabled the stock market to fare much better than the real economy. Moreover the tailwinds have plenty of room to run over the years and decades to come.

On a cautionary note, though, the upswell of the bourse during the late 2010s and afterward will lure a growing number of punters out of the woodwork. As a result the market will get ahead of itself from time to time. The DIA fund, for example, will continue to slump by a handful of percent every few years as well as slam into full-fledged crashes a couple of times per decade. On the bright side, the crackups will deter the general public from stampeding the bourse during the 2020s. In that case, a full-blown bubble will not arise until the subsequent decade.

On the whole, the turning points for the top benchmarks occur around the same time. Despite the linkage, though, every index dances to its own tune tempered by a host of historical landmarks, psychic drivers, and market forces. To cite an offbeat example, the investing public faced a mental hurdle lying at 20,000 points for the Dow index; but the benchmark trotted past the milestone in 2017 with only a brief pause due to the ebullience of the madding crowd at the time.

As a rule, the junior members of the bourse surge when the senior ranks trudge higher. Examples of springy groups lie in bantam firms and emerging regions. For instance, an icon of the small fry lies in an index fund that sports the ticker symbol of IWM. On the whole, the lightweights have a way of outpacing the heavyweights such as DIA and SPY.

On a downcast note, the developing markets turned in dismal results during and after the Great Recession. The standard bearers in the field, which flaunt the call signs of VWO and EEM, bounced around but made no progress throughout the decade following the bust of the housing bubble.

In the United States, the real economy has crawled along at a couple of percent a year on average in the millennium. The meager increase in output and income did not come close to justifying the huge surge of the stock market during the 2010s. As we noted earlier, though, a growing fraction of the profits for American firms comes from foreign markets. Thankfully, the world economy in toto should expand at a crippled but bearable pace of 3% a year or so on average over the next few decades.

At the microlevel of the singular firm, a go-getter can often crank up its net income by several times any upturn in revenues. For instance, a hustler that expands its online sales by 10% might increase its profits by thrice that much. Given this backdrop, an uprise in earnings of 15% a year on average till the 2030s lies fully within reach of the Dow index that represents diverse sectors of the marketplace.

From a larger stance, the foregoing figure of 15% also jibes with the second half of an expansive wave that straddles the real economy and financial forum. More precisely, the stock market has a custom of flourishing when the commodity market flounders; and vice versa. This supercycle, comprising the inverse hookup between the cost of raw materials and the pot of corporate earnings, lasts some 34 years on average.

The last trough of the commodity cycle in the physical economy cropped up in tandem with the peak of the Internet craze in 2000. From the burst of the digital bubble to the middle of the 2010s, the stock market thrashed around but did not get very far. The exemplar involved the cave-in followed by the retrace of the Nasdaq market to its prior peak. The good news, however, is that the bourse in the mid-2010s has shown patent signs of starting the upward phase of the supercycle. If the past is prologue, then the future looks bright for the equity mart till the middle of the 2030s or thereabouts.

Long before then, however, international investors should by the early 2020s venture in droves beyond the relative safety of the U.S. bourse. In that case, the feisty vessels such as VWO will chalk up roughly twice the gains snagged by the chief benchmarks such as DIA and SPY. Moreover the ascent of the emerging regions should parallel the rousing performance of QQQ despite the endless hail of sideswipes and smackdowns to beset all manner of markets along the way.

To sum up, the leading companies earn a blooming share of their profits from the budding countries. For this and other reasons, the DIA fund is slated to enjoy an uptrend of some 15% a year on average until the 2030s. In that case, the corresponding turnout for SPY should be a few percent higher. Meanwhile QQQ ought to rack up percentage gains reaching into the 20s per year on average. The latter feat also applies to the corps of bantam firms tracked by the IWM fund as well as the emerging markets in the form of EEM and VWO.

NOTE:  The full ebook is available in PDF form under the title of Forecast of Top Index Funds for Investing in the Stock Market at MintKit Library.

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