2011 Dow Jones Industrials Outlook

The Dow Jones Industrial Average continues a long. slow chop upwards off the 2009 lows. But will this trend continue for 2011?

In analyzing the relationship between politics and the financial markets we found that in the history of the stock market, no period saw a loss with a Democrat president in office.

We also saw that the average percent return of the Dow Jones Industrial Average for Democrats was 81% and the average return for each presidential term (both Republicans and Democrats) was 59%. The worst return for Democratic presidents was 1% in the Jimmy Carter administration.

When President Obama took office on January 20, 2009, the Dow Jones Industrial Average closed at 8228. So lets do some math to figure out some levels under the assumption history repeats itself.

The 59% return level is:
8228 * 59% = 4,854
8228 + 4854 = 13,082

The 81% return level is:
8228 * 81% = 6,664
8228 + 6664 = 14,892

Graphically, here is what it looks like with a 2 year extrapolation.

Assuming the worse case scenario over the next two years that we do a reversal and finish 1% up for the Obama administration, the risk is 33% from these levels. If the Dow closes up 59% for the 4 year term, the move up is 13% from these levels. And if the Dow should close up 81%, the move from here is 28%.

So in short, the risk is -33% to the downside with upside targets from opening 2011 levels of +13% and +28%.

About Kerry Kobashi

Kerry is the founder of KerryOnWorld. He lives in Silicon Valley and has worked as an engineer and project manager. He owns Kobashi Computing a consulting company.