Stock Market: Dow Jones All Time High - What Now?

Today the Dow Jones Average closed at all-time record of 14,254. This caused a lot of ado in the media - of course. One commentator wrote: "We are over the rainbow" (thereformedbroker).

Maybe so, nevertheless I reckon this is just a return to normality. The long term chart of the Dow Jones Averages above (source ritholtz.com) shows that the Dow has been rising since its inauguration in the year 1896, on average 7% per year. The stock prices have been following the economy of the Western world which has been growing since the industrial revolution at least. Naturally there have been a lot of all-time records.

The chart also shows that there have been long and painful breaks. It looks like we have left now the latest break behind us and are back on the long term upward.

My optimism is based on 4 arguments:

1. During the recessions of the years 2001/02 and in 2008 companies restructured and reduced costs significantly in order to survive. Now they are much fitter and more efficient than before. I believe that this learning process will continue and translates into a long term trend of rising company profits.

2. We are experiencing a new technological revolution, meaning rapid innovations in computing (including mobile devices like iPads & iPhones), engineering, robotics, nanotechnology and other fields. All these processes are further enhancing the efficiency of the companies and create new markets. These trends should fuel economic growth and therefore generate gains on the stock markets over many years to come.

3. The global economy will get a lot of tailwinds from the emerging markets thanks to the catching up process of China and other emerging markets. People in Asia, Latin America & Africa  have a tremendous backlog demand because income & fortune are much lower than in the Western world. But there are billions of talented & diligent people who want to reach the US and European standard. Therefore those people are working hard and they are investing to be able to expand their consumer expenditures in the decades ahead.

4. Inflation rates are at historical lows. Hence central banks don´t have to raise interest rate sharply to break inflation which often caused a recession in the past. Therefore the low interest rates will continue for years and inspire investments that will add to the economic growth.

I believe that these beneficial developments will strengthen one another and lead to a new period of prosperity and therefore a long row of new records for the Dow Jones.