Inflation-Adjusted Dow Up 130% From 2009 Low

Chart of the Day (May 13, 2015) - As the Dow trades approximately 1% below all-time record highs, this chart provides some perspective by illustrating the inflation-adjusted Dow since 1900. There are several points of interest. Take for example an unlucky buy-and-hold investor that invested in the Dow right at the dot-com peak of December 1999. A decade and a half after the dot-com peak of December 1999, the Dow is up a mere 12%. On the other hand, the inflation-adjusted Dow is now up a significant 130% from its financial crisis lows in 2009.

20th Century Hyperinflations

Credits: Miles Franklin

Amateur Investors (AI)

S&P 500 Inflation Adjusted Earnings near ATH

With second-quarter earnings largely in the books (over 84% of S&P 500 corporations have reported), the chart below provides some long-term perspective to the current earnings environment by focusing on 12-month, as reported S&P 500 earnings.

The chart also illustrates how earnings declined over 92% from its Q3 2007 peak to Q1 2009 low which brought inflation-adjusted earnings to near Great Depression lows. Since its Q1 2009 low, S&P 500 earnings have surged (up an inflation-adjusted 1129%) and currently come in at a level that is well above its dot-com bubble peak and fast approaching its credit bubble peak. It is interesting to note that the original run up in real earnings from Great Depression lows to dot-com highs took over 67 years. The current spike has taken 37 months. Also, current Q2 earnings times four would make for a new inflation-adjusted high for S&P 500 corporate earnings. Therefore, as long as earnings do not decline, S&P 500 companies are on pace to make a new all-time record in earnings by Q1 2013 at the latest (HERE).

 For every $20 bln the FED purchases in long term debt the stock market rises 1%. 

• QE1 was $1.4 tln: expected rise 70%, actual rise 69%. 
• QE2 was $600 bln: expected rise 30%, actual rise 29%. 
• Op Twist was $400 bln: expected rise 20%, actual rise 22%. 
• Op Twist expanded to $667 bln: expected overall rise 33%, actual rise yet to be determined (HERE).

S&P 500 Price, Inflation Adjusted 1881 - 2012

 

Data courtesy Standard & Poor’s and Robert Shiller.