London (CNN Business)Journalist James Glassman and economist Kevin Hassett wrote in late 1999 that the Dow Jones Industrial Average could hit 36,000 as soon as 2005.
That prediction in their book, "Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market" did not come true. The dot-com bubble popped, sending markets into a tailspin. The comeback in 2006 and 2007 was cut off by the global financial crisis and Great Recession.
But the rally in the wake of the Covid-19 pandemic has finally delivered. On Tuesday, the Dow closed above 36,000 for the first time ever, propelled by unprecedented levels of government and central bank stimulus and enthusiasm about corporate earnings.
The rebound has been sharp and quick. The Dow passed the 35,000 mark for the first time in July.
"This is yet another reminder for investors how far we've come the past 20 months," said Ryan Detrick, chief market strategist for LPL Financial. "In fact, 2021 is the only year in history to hit six separate 1,000 milestone levels."
Hassett, who served as a senior economic adviser to President Donald Trump, doesn't see the book as a forecasting miss. Instead, he told me, its central thesis has held up well.
We chatted by email about the milestone and his reflections. The following conversation has been condensed and lightly edited for clarity.
Why did it take longer than you expected for the Dow to cross the 36,000 threshold?
KH: The book was always about the case for holding stocks for long periods in order to reduce risk. Our first piece on this, and the book, always made it clear that nobody can predict stock movements in the short run. But over longer periods, prices go up. Many were arguing that the huge gains of the 1990s made it too late for ordinary investors to join the party. We said it was not, if they could commit to the long run.
You wrote in 1999 that stocks weren't as risky as investors believed and were undervalued. Do you still think that's true?
KH: The data since have confirmed patterns that have been clear back to the early 1800s. In the long run, the risks associated with holding stocks decline.
Which of the book's arguments do you think have held up best?
KH: The average return on equity since the book came out has been almost exactly what we assumed.
And the worst?
KH: We expected interest rates to be higher, and never anticipated quantitative easing. In some sense, this is good news for stock investors going forward. The equity premium is still healthy, so expected returns on stocks over the next two decades are still higher than for bonds.