Inflation Adjusted Dow

Another fascinating viewpoint historical perspective: Inflation Adjusted Dow.


Chart of the Day writes:

"For some long-term perspective, today’s chart illustrates the Dow adjusted for inflation since 1925. There are several points of interest. For one, when adjusted for inflation, the bear market that concluded in the early 1980s was almost as severe as the one that concluded in the early 1930s.

It is also interesting to note that the inflation-adjusted Dow is now a touch less than three times higher than where was in 1929 and a little over double where it was in 1965. Not that spectacular of a performance considering the time frames involved.

However, the magnitude of the bull market of 1982 to 1999 (even when adjusted for inflation) was truly of historic proportions. While the Dow has recently made new record highs on a non-inflation-adjusted basis, today’s chart does illustrate that on an inflation-adjusted basis the Dow still trades below (albeit slightly) its 1999 peak."

Interesting stuff (I have no idea what it means).


Inflation Adjusted Dow
Chart of the Day, April 13, 2007

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. Michael Schumacher commented on Apr 13

    have to agree, I know not what it means either. I saw it earlier when posted in someone’s comment

    pretty looking chart though..

    Good weekend to all


  2. Dirk van Dijk commented on Apr 13

    When looking at an inflation adjusted Dow (or any other long term market index) remember to take dividends into consideration. For most of the early part of the graph, the dividend yeild on the graph easilly exceeded the rate of inflation (prior to the 50’s the thinking was that dividend yeilds should always be higher than bond yeilds since stocks are Jr. securities). Durring the 70’s dividend yields fell far short of inflation. While the market yield is higher now than it was in 99, it is still historically low.

  3. Stan commented on Apr 13

    In the spirit of “I don’t know what this means”:
    On this date in 2006, gold was around $590, and the difference between the U.S. 10-year and the 10-year TIPS was 2.83. Today, gold is about 16% higher, at about $684. Yet the TIPS spread is at 2.46 right now.

  4. Steve Minneapolis commented on Apr 13

    This chart clearly explains why the rally from 1982 to 2000 feels better to the average person than the 2003-? rally. From a chartist’s perspective, it also portends an ominous period coming, similar to 1965 to 1980, with mediocre returns and pesky inflation.

  5. REW commented on Apr 13

    To me, it means stocks are not the inflation hedge people think they are. The real point is the destructive force of fiat money. Wanniski used to point out that the Dow was about 1,000 and gold was $35 an oz. when Nixon floated the currency. Thirty years later, gold was at $350 and the Dow was at 10,000. All those stock gains were merely result of the repricing of all assets as a result of the great inflation after the dollar floated. To make matters worse, investors paid capital gains taxes on those gains which were nominal only.

    Under the current inflation, stocks will work their way higher over the next fifteen or so years (the average length of contracts and bonds is shorter today) but those gains will be nominal only. And if the Dems have their way, we’ll pay higher cap gains taxes on those flat (in real terms) returns.

  6. Lauriston commented on Apr 13

    Numbers number numbers once again. OK, inflation has been tinkered with so much that it is truly meaningless. Far worse than E of P/E ratio fame. Every successive government or institution comes up with their own measure to suit their ends. Quite meaningless really, but makes for good pictures and analysis I suppose. Apologies for the repetition, but as the Chinese say, “Poverty is the common face of all scholars.” Earnings, inflation numbers and employment numbers…

  7. VennData commented on Apr 13

    Wait a sec… If Bush et al didn’t want those div, cap gains and income tax rates to go back up, then why did they put a – short – time limit on them? If tax rates go back up, it’s squarely on Bush and the Congress that passed them. That’s exactly what they passed.

    Beside Clinton raised upper income taxes slightlyand inflation dropped through the following years.

  8. Arnab Dutt commented on Apr 13

    I know what this chart means. It means it’s time to open a bottle.

  9. lurker commented on Apr 13

    in response to your pig almost through the python comment earlier, it will only take a hardy credit squeeze to force the pig out of the end of the python and all over the faces of bulltards like Kudblow and Luskin.
    the bar is now open. Alaska Pete, this one’s to you.
    cheers mate.

  10. john commented on Apr 13

    thats stupid looking at that.thats like saying jpan in real terms is 1/2 its 1989 high but inflation adjsuted is 1/20th. emans nothing. bottom line the markets been running with zero corrections for almsot 5 years and needs to get hit for 20% or so

  11. __earth commented on Apr 13

    are we supposed to believe chartists?

    I think most of what they is crap.

  12. Gunther commented on Apr 13

    I will try to put some meaning into the chart:
    The duration of the bear markets after 29 and 66 was more or less equal. So, the printing press changed numbers, but the market run its course anyway. So much for the power of central bankers.
    I would like which inflation measure was used?
    1. The constant price index (CPI)
    2. A more realistic price index
    3. The inflation in the supply of money (M3 or m3 plus total credit)
    Assuming that we are in an (inflation adjusted) bear market again, the support would be less than half the actual value. It will be intesting to see how we will reach the support. Fourty years sideways??

  13. Bob Carver commented on Apr 14

    This is the kind of chart you get when you:

    1. Use an average done by a committee composed of journalists (Dow Jones).

    2. Include only laggards, as all of the Dow 30 stocks are.

    3. Ignore dividends and the effect of compounded reinvestment of said dividends.

    Now, it would be an entirely different story if you used a more realistic gauge of the US economy, such as the S&P 400 MidCap Index, which has continued to make a series of all-time highs for the past several decades. That index is up 1900% in the last three decades.

    In addition, the inflation gauges overstate true inflation by about 1 percentage point per annum. This is why the Fed erred in lowering short term interest rates too low and had to madly hike rates to slow the inflation they themselves caused.

  14. flipper commented on Apr 14

    It should mean that long term real stock market growth is in line or slightly above long term economic grwoth.

    But this chart seem to be completely meaningless for two reasons:

    1. it’s the Dow. i really do not understand why the Dow is still so popular in america. It’s a lame, very narrow index which is moved by share prices rather than market caps.

    2. it should be total return – adjusted with dividends and buybacks.

    if anyone is going to make some inference from this kide of chart it shoild be snp500 total return adjusted for inflation.

  15. REW commented on Apr 14

    VennData is right to criticize my post. I should have used the term “Congress” instead of “Dems”, to be more technically accurate. It was a casual observervation that currently Republicans are seeking to make tax cuts permanent and Democrats are actively advocating allowing the rates to rise to previous levels.

  16. greg0658 commented on Apr 14

    <30k 300k 600k 1m 10m 1b >10b

    Single tax in logarithum upwards on ___?___.

    Everybody pays something even poverty level.

    Government is not for profit. Fair bidding for services and items.

    Tax rate fluctuates yearly with needs ie, paying for a war, a hurricane. Behooves spending reductions and correct thinking in new leaders.

    Logarithum reflects more in pocket for all with the basic primary fact that everyone deserves life, liberty and happiness. Superior achieving always leads to more in the pocket.

    And we all know happiness is a lot easyier with a house, utilities, food, medical, transportation and recreation. Tax rates still let mega gagillionaires to have mansions, heat a pool, dine on $100 steaks, best doctors, drive Cadillacs own planes and hit a resort every weekend.

    Wage scales must match brains/braun (fact not all are born with both), take into account good job/crap job.

    Waste, gluttony and lazinessis is a fear in this perfect world.


  17. cam from Hulver’s site commented on Apr 15

    Optimus Prime was never Truly Primed

    rome, demo, doubleclick, green corvette, cruel sea, belgravia, comic, dow, andrew bartlett, suck it atlanta
    1. Roman Constitution: pre-Montesquieu.
    2. Knocked up a basic, yet function complete, demo in three days. Thanks turbogears. I shudde…

  18. mike commented on Apr 21

    my butt itches…

Posted Under