Dow vs Money Market (Since Peak)

On Wednesday, we looked at the breakdown of Dow components, surprised to discover that only 10 of the 30 Dow components were above their 2006 2000 highs. Four stocks — Boeing, United Tech, Caterpillar and Altria — were the primary drivers, pulling the Dow higher despite the drag of so many other relatively weak components. 15 of the 20 Dow stocks still below their prior highs are down substantially, with GM and Intel off ~60%, and Microsoft still down by 51%, and Home Depot and Merck off ~ 40%.

But before we get too excited about the new highs on a closing basis — perhaps even today? — perhaps we should look at the actual real performance of the Dow.

Consider what happened if you actually held these 30 stocks (individual issues or through the Diamonds) since January 2000: After 6 1/2 years, you are now almost breakeven on a nominal basis. If you reinvested the dividends from the Dow, you would be up 12.7%.

On a real basis, adjusted for inflation, you are actually down 19%; With reinvested dividends, you are down around 9%.

If you were lucky enough to sell back in January 2000, and you instead simply placed the money in a cash fund (money market), you would be up ~20.87%  on a nominal basis; On a real basis, you are up just under 2%.

So while everyone on TV is celebrating the new highs, I can’t help but think:  "Yeah! We only underperformed cash by 818 basis points! Yeah!

Dow Industrials and Fidelity Money Market Fund



That’s on a real or a nominal basis.


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  1. curmudgeonly troll commented on Sep 29

    In first sentence, do you mean below 2000 highs?

    I think any time any index makes a new high, a statement like 66% of components are below their all-time highs will not be far from the truth.


    BR: Doh!

  2. Barry Ritholtz commented on Sep 29

    Above — 10 of the 30 Dow components are above.

    And in a healthy market, we would be seeing more all time highs, greater participation cross the board.

    Narrow is not a good thing . . .

  3. christopherrobin commented on Sep 29

    i guess it is easy to manipulate 30 stocks opposed to the S&P , NAZ or Rus2k with 1000’s of stocks. Right before elections too. Good Job Ben.

  4. saviano commented on Sep 29

    Yeah, there should be still room on the upside! In almost 7 years, fundamentals have also changed a bit, and there is of course your very correct real terms observation. The flood of money/liquidity is still not absorbed (in my opinion) from the established equity markets.

    Cooling off or not – there still should be more of a bull market infornt…

  5. Mark commented on Sep 29

    Yes, in the intervening 6 years The Bear has chewed up PE ratios crushing them to current levels despite record earnings AS BEAR MARKETS DO. Now, the equity markets have decided to expand those ratios in the face of declining profit margins, as if reversion to the mean were an antiquated concept in The Days of Excess Liquidity.

  6. Craig commented on Sep 29

    Barry, Curmudgeonly troll is asking about the year in your first sentence……

    You wrote 2006 highs, but I think you meant 2000 highs.

  7. CDR commented on Sep 29

    What are with the numbers this morning ?? And the futures rally. Put some more lipstick on this pig. This is truly a F’ed up situation.

  8. tjofpa commented on Sep 29

    I’m sorry, but I must have missed the countervailing
    data point that has caused the $ to rally EVERY DAY since last Thurs Philly Fed induced sell off. COuld some please fill me in? Was it the downward rev to GDP? The first drop in home prices in 11 years?
    Sorry, I must not have been paying attention.

  9. Q-Ball commented on Sep 29

    When trying to determine if something is going higher or lower (all that matters for making money going forward) Why does the fact that something has underperformed for 6 years on its way to new highs have any bearing? It might even argue that the spring is coiled for a higher move. I don’t understand the point of showing that a market that is at the same point it was 6 years ago underperformed cash. That seems to fall in the major DUH category doesn’t it?

  10. permabull commented on Sep 29

    Equity market comparisons are often taken off some previous all time high.

    When you change your Bloomberg settings to 1, 3, 5, 7, 10, 20, 30, 40 and 50 years – how do the total return comparisons fare?

  11. MeanGene commented on Sep 29

    One key factor missing here. A secular bull market in commodities started when the tech bubble finished. So if the same money had been invested in copper or crude oil what would the returns have been?
    And even more important, what would the comparison of copper vs copper stocks, or oil vs oil stocks have been?
    The would be the subject I would like to see in a post.

  12. M.Z. Forrest commented on Sep 29

    The reason I personally like comparing to cash is because then I don’t have to deflate for inflation. I can be very confident about the interest rate received for cash. I don’t have the same confidence in the measure of inflation. Oh, and there is little thing about a risk premium you are supposed to receive with stocks.

  13. Nick commented on Sep 29

    We have a new secular bull market for stocks under way because the market took out the highs for the last cycle. Me too i thought we were in a secular bear market but we have to listen to the market. You bears have such a dogmatic view of the markets but you are wrong and it’s time for you to reajust to reality.

  14. The Dane commented on Sep 29

    The numbers for the DOW are really allot worse.

    Analyst calculate the expected return on stocks by using the CAPM (capital asset pricing model). My guess is that, for the Dow to compensate for, business and financial risk, should give a return of minimum 10-13% a year before you can say it creates value. If the return is lower you are not compensated for the risk taken.

    Another problem is ignoring the 30% drop in the USdollar index.

    Taking these two things into account the Dow should be at maybe 20.000 to break even not 11.700.

    The Dane

  15. Steve Bowles commented on Sep 29


    Im really curious how you define ‘secular bull market’ – last time I looked the S&P was still over 200 points below its ‘secular’ peak

  16. jkw commented on Sep 29

    It never seems to make sense to compare investment returns to inflation. There is no risk-free way to get returns identical to inflation (although if you ignore price volatility while you hold them, TIPS provide long-run inflation based returns). And which measure of inflation are you going to benchmark against?

    It makes far more sense to compare returns to some kind of “risk-free” cash investment. But it is useful to know which one. Is this comparison to a large, well-run money market fund (and is it a specific fund or some kind of average)? Continuously rolled over 4 week treasuries? 13 week treasuries? All of these will have somewhat different returns, even though they could all be reasonably considered the benchmark for risk-free returns.

  17. Mark commented on Sep 29


    Great comparison! Let’s take a market cycle low to a cycle high and see if cash outperformed it! I am dumber for having read that post.

  18. blam commented on Sep 29

    The current market is not a fair game but is being manipulated. It is hard to put a value on such an animal. When the market is not normally distributed but are pinned at + 2 standard deviations for 3 months, the risk premium should be over 10 percent.

    The copper market has been cornered from London. One party reportedly controls 90 % of the available LME copper, perhaps los bandidos muchachos. No wonder every shady company wants to go to London to escape the reporting requirements.

    I read that Goldman Sachs front ran their change in ETF weightings of natural gas causing the decline while profiting from it.

    The precipitous drop in oil prices pretty well exposes the fact that the futures markets are non-regulated, manipulated consumer rip-offs in which financial interests raise prices far above production costs on any commodity being traded. Then drop them as they see fit.

    The world’s currencies are under continuous manipulation.

    P/E ratios are at historical highs. High P/E ‘s have been high since the mid-90’s because the Federal Reserve forgot that their job was to look after the well-being of America, not wall street.

    Inflation is far above the dumbed down, averaged out crap that the various agencies are reporting.

    The only degree of freedom is the consumer. And the consumer’s future is very cloudy.

    Stock valuation models don’t work very well when the growth rate of corporate earnings is negative, the risk premium is high, and P/E’s are compressing.

    I think Nick should margin up, today, while the market is on sale at such cheap prices. It’s obviously going higher for some very good reasons.

  19. Nick commented on Sep 29

    Here are a few points:
    1) Valuations are relatively cheap for the big cap stocks, most DOW stocks have dividends between 2.5% and 3% and PEs between 15-18. In the last secular bear market, which was between 1966 and 1982 the PEs dropped to 9 or 10 but interest rates on risk free treasuries were 18-20%. So even though stocks had high dividendd yield and low PEs you were still better off with treasuries. Today, we have a different environment. Rates are low. I think you are better off with a GE or KO or MO or other DOW stocks paying between 2.8% and 4.5% in dividends than in bonds paying 4% or 5%. And you also get earnings and dividends growth. Therefore, unless rates go up sharply i don’t see how can the market collapse in thsi environment.
    Regarding inflation, there’s none. We only had inflation in commodities and housing, and both are now slowing down. I expect CPI to be negative shortly. We live on a globalized world and there fierce competition which makes sustained inflation almost impossible.

  20. RW commented on Sep 29

    jkw makes a good point. I use a moving average of the non-seasonally adjusted all-urban CPI and an index of the 13-week T-bill cumulative return for comparison purposes but the latter is what I base risk-adjusted return calculations on (geez, ended in a preposition there, oh well — I constructed the T-bill index many years ago, in dBase III if you can believe it, to simulate a highly risk averse investor who simply reinvests gains each quarter at the current auction rate).

    As to the larger point, I shifted equity weightings to favor energy and metals in 2000 but that was still a minority rotation in my portfolio; I’m sure I’m not the only one who wished, with 20/20 hindsight, that I had shifted more and/or raised more cash but in any case valid measurement of price series trend(s) requires like-to-like comparison (peak to peak normally). Making money in equities hasn’t been ‘easy’ since 1998 IMHO.

  21. Bob A commented on Sep 29

    New secular bull market? Hmmm. Wasn’t the bull market of the nineties set up by 1) the crash of 87 and 2) the housing crash that followed?. So, yes, I’m looking forward to a new secular bull market… just as soon as we see those two key components play out. Oh.. and a Democrat in the White House would be the icing on the cake.

  22. The Dane commented on Sep 29

    Nick, i have to say that I do not agree with you. Inflation is living well, it is called asset inflation. Money supply combined with consumer credit has send stock- bond- and housing prices up. Inflation is living outside CPI.

    If you are right about CPI going negative then expect one hell of a shock for the markets. Deflation is the last thing Bernanke wants.

    Again stocks are not giving a good risk/reward return compared with bonds. Some stocks are but not the broadbased indices.

  23. bob commented on Sep 29

    We are 6 years into secular bear market, and there is another 9-10 years to go.

    So the fact that we are only -9% negatinve in our investments is not so bad. We will see much deeper levels in coming years. Much deeper.

  24. curmudgeonly troll commented on Sep 29

    Don’t post before coffee LOL.

    When the index crosses (matches) its previous high, I would expect 50% to be higher and 50% lower than at the previous index high. (disregarding changes to the index/survivorship bias)

    However I would expect only a small number to be making their own new all-time highs. (Mathematically, you don’t need any to be at new highs – each individual stock could have been higher at some point in the past when the other 29 stocks were on average lower)

  25. Mark commented on Sep 29


    I think that is why there is rotation into these stocks. Better to hide in low PEs than the other way around. But I still don’t think they are cheap. Maybe fairly valued but not cheap. I am with “bob” on that point.

    I don’t need to own stocks. I can be in or out. Right now I am mostly out. My cash is earning 4.9% short term and risk free. If I extended it a littlle (6 mos) it would be even better.

  26. blam commented on Sep 29

    A P/E of 8 at the market bottom (and earnings bottom) is a lot different than a P/E of 19 at the top of the earnings peak. Especially when earnings are overstated by 15 – 20 % because of “non-recurring” events.

    Say if earnings dropped 50 pct, which happens all the time in recessions, then P/E’s are at 38 X earnings. Or when earnings are negative, what is the P/E then ?

    Dividends are also very low by historical measures. By the way GE has gained about $ 2 per share over the past three years.

    The period 1966 to 1982 is a very good example of what may happen to stocks over the next ten years. I think the DJIA in 1982 was the same as the DJIA in 1968. A liquidity driven 1960’s boom turned into the 1970’s bust. Asset price inflation turned into financial price inflation and everything stagnated for 12 long years.

    Japan is just now stabilizing from the asset price inflationary bust of the late 1980’s.

    The Fed is continuing their intransigence against inflation, hoping it will just go away. It isn’t. Oil prices go up, the Fed says oil prices don’t matter. Oil prices go down, the Fed says inflation is over. That is one confused and F—ed up group. Painting the numbers like hedge fund managers have been painting the tape. Makes me wonder to what end?

  27. Mark commented on Sep 29


    Your PE “conundrum” is solved by John Hussman’s peak earnings PE ratio concept. Takes out that nasty confusion caused by apparent PE expansion in recessionary periods. It’s at his site in one of his research articles and I think it was in Barron’s at one point.

  28. Nick commented on Sep 29

    Well, you all raise good points but PEs and dividend yields depend on the general level of interest rates in the economy. In the 70s, as we mentionned PEs were in the single digits and dividend yileds were a lot higher than today. However, long term rates on treasuries were 18%-20%. If rates stay where they are right now, we won’t see the PEs we saw in the 70s, that’s why i don’t see a big market collapse.
    On the other hand, we had a new high on the DOW transport, on the Russell, on the DOW, and on pretty much all emerging markets. It sure doesn’t sound like a secular bear market to me. Only Nasdaq and S&P are below their highs because they had a big weight in tech stocks.

  29. blam commented on Sep 29

    The idea that high interest rates in the 1980’s caused the low P/E ratios has some validity. However, before Greenspan and the great P/E and everything else bubble expansion, high P/Es were reserved for market bottoms when corporate earnings were bad but expected to expand. LOWER P/Es were expected at market tops as earnings were expected to cool.

    Assuming that earnings are stagnant, then a stock becomes like a bond and the dividend yield actually becomes the most important cash flow component. That is currently 2 %. But stocks are risky so a person has to add a “premium” to the risk free bond price. Since short term money is returning 5 % plus the historical 3% risk premium for the bluest of blue chip stocks, a non-risk averse investor should expect at least 8 % from stocks. In a world of stagnant earnings this would equate to a 75 % drop in stock prices.

    Since earnings have historically averaged the same as the growth in GDP more or less on average, earnings growth is likely to retrench to below earnings growth as a cooling down occurs. For me, that increases the risk premium. In a risk averse world, which means anyone that wants to keep their money, I peg the reasonable P/E at 10 – 11. If I want income, I’ll go with short term treasuries.

    The US is sitting on top of a huge bubble tha will turn into 1970’s inflation (by some accounts, if measured properly, allready has). Any rise in economic activity will translate into inflation. The Q2 GDP which was revised downward after being revised upward smelled the joint up with inventory accumulation and government spending.

    I figure the market has a 40 – 50 % fall to be fairly valued again.

  30. E-Jay Ng commented on Oct 1

    If the Dow has underperformed cash by 818 basis points since the 2000 market top, then isn’t it time for stocks to play “catch up”? This is what mean reversion is about, right?

    The Russell 2000 has long exceeded its 2000 market highs. In any sustainable rally, small caps lead the way. The Dow will now play catch up with both cash as well as against the Rut 2000 index. This mean the cyclical bull market that began in March 2003 has a lot of life and legs left!

  31. jkw commented on Oct 4

    By any reasonable measure, stocks were very overvalued at the 2000 peak. Mean reversion does not suggest that things will go back to previously overvalued levels. Secular bull markets raise stock prices from below fair value to above fair value. Secular bear markets leave stock prices more or less unchanged while value catches up to price. Look at 1950-1982 for the previous full cycle (I might be off a bit on the starting point). DJI peaked somewhere around 1966-1968 and did not make a substantially higher high again until the early 80’s. It went up and down in the 600-1000 range for about 15 years. This was during a period with the highest inflation on record for the US.

    RUT didn’t have a bubble peak the way other indices did, so it didn’t have to fall as far after 2000. The return since the mid 80’s is now about the same on the RUT and the DJI.

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