Dow Versus Other Markets at Highs

via Birinyi Associates, come sthat rather intriguing chart:

click for larger graphic


There have been 3 major divergments between the Dow Industrials and the Transports: 1972, 1995, 2005.

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  1. anon commented on Oct 16

    Barry… or anybody else…

    What do you think of the whole “Irrational Exuberance” argument that stocks are still overvalued in terms of historic P/E ratios due to the great bull market in the 80s to 90s… and that there could still be a big correction in the future, especially if the Boomers pull out of the market.

    This image just reminds me that the Dow could still be fundamentally overpriced.

  2. Q-Ball commented on Oct 16


    I think thats basically been the thesis here for the past year. Or atleast part of it.

    The other part would be that even if its just fairly valued corrections from highly over-valued prices tend to swing to under-valued prices before the correction fully runs its course with possible medium term rallies happening in between. Thus the comparison to 1966-1982.

    Who is right? Check back in about 10 years. :)

  3. TonytheTiger commented on Oct 16

    As Jeff Saut wrote this mourning:

    Further, valuations are not particularly cheap. Indeed, despite the media’s hype about the Dow’s continuing new highs, the senior index is changing hands at about 23x trailing earnings, possesses a paltry yield of 2.2%, an earnings yield below that of the benchmark bond, and is trading at roughly 3.5x book value. Moreover, as Paul Montgomery recently noted:

  4. charts commented on Oct 16

    divergments…is that french?


  5. tjofpa commented on Oct 16

    What? No big $ surge on Empire State data…
    Don’t tell me it might be … gulp.. over.

  6. scorpio commented on Oct 16

    how do u say “double-top” in French?

  7. eli commented on Oct 16

    Here’s a funny tidbit from the past. Back when Barry was asking for an example of a stock that always goes up (in the discussion of zero sum games), some smartass mentioned Manchester Inc and demanded Barry explain himeself!.

    Manchester Chart

    Neat.. it sure did go up and up.. until it went down and down some more. Hope the schlub wasn’t actually involved with that stock.

    The fellow quite literally top-ticked that stock.

  8. tjofpa commented on Oct 16

    Dollar May Gain as Fed Officials to Highlight Inflation Risks

    By Kosuke Goto

    Oct. 16 (Bloomberg) — The dollar may strengthen on speculation Federal Reserve officials will flag inflation risks in the U.S. economy, heightening concern the bank will resume raising interest rates.

    The U.S. currency may extend a three-week rally against the euro and yen as an improving economy prompted traders to erase bets the Fed will reduce borrowing costs. U.S. 10-year Treasury yields last week rose to a three-week high. Officials, including San Francisco Fed President Janet Yellen, will speak today.


    Why do I continually get the feeling that this BS is for public consmption only?

  9. traderb commented on Oct 16

    you get that feeling because half of bloomberg stories are just cr*p….if they stuck to reporting the data instead of adding “the dollar may go up” or “stocks may go down” on every story the news they report would be so much more useful.

    (btw i still think bloomberg is the best company in the world, you can do pretty much anything with it. and no i dont work for them)

    now, lets get back to the main talking point…are rates gonna end next year at 4% or 6%? market is pricing in 5% and i think there is a trade in there somewhere…

  10. CV commented on Oct 16

    So,I read this to mean that whenever there is a divergence [like now], the Dow goes higher? what am i missing?

  11. foo commented on Oct 16

    For those in the real world, this chart packs little meaning. Looking at the last twenty-five years without adjusting for the drop in rates and inflation from the 70s to today might be good for parlor tricks, but not analysis.

    P.S. I mean no offense to chartists and index wachers. I just don’t see this Dow top as an all-time high.

  12. Barry Ritholtz commented on Oct 16

    OK, I’ll bite —

    How does inflation impact only some of the INDEXES but not others? Wouldn’t a rising inflationary tide lift all boats?

    If the Dow is at a records high, but the transports and Nasdaq are not, what was the impact of inflation?

  13. kingfish commented on Oct 16

    “divergments…is that french?


    now lookie here, lemme edumacate u on da divergements in dis here market

  14. TonytheTiger commented on Oct 16

    consmption!…is that spanglish?

  15. mentalmodel commented on Oct 16

    Didn’t the BLS comment on the negligable forseen effect from boomer outflows (not enough aggregate savings to make a difference)? Unmet healthcare and pension obligations might have a bigger effect.

    Foreign fund inflows might be responsible for the current run. The dollar has held up quite nicely.

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