Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



3 Graphs to Understand the Dow's New Record High

If you pay even the slightest bit of attention to the stock market, you will have heard by now that the Dow Jones Industrial Average (DJINDICES: ^DJI  ) finally beat its October 2007 all-time nominal high this week (the qualifier is important; more in a moment). Leaving out the fact that the price-weighted Dow is a flawed index (the broader, capitalization-weighted S&P 500 (SNPINDEX: ^GSPC  ) is less than 1% from its 2007 high), is there any real significance to this milestone?

Well, for one, it's good reminder that, although the U.S. stock market has been a remarkable wealth-creation engine over time, it periodically suffers long periods of stagnation; both of these characteristics are clearly visible in this chart of the Dow's full history (the scale is logarithmic, and the vertical grey bars indicate recessions):

The massive decline the stock market suffered at the height of the credit crisis in the fourth quarter of 2008 and the first quarter of 2009 is clearly visible in the upper right corner of the graph. That decline was severe enough that it has taken the Dow nearly five and a half years to get back to its October 2007 high. Or did it? The following graph, which shows Dow values on an inflation-adjusted basis, beginning in 1999, tells a different story:

Once inflation is accounted for -- and make no mistake about it; inflation is a cost -- not only has the Dow not recovered its 2007 high, but it remains below levels established in 1999! That's terrible news for long-term investors. Thankfully, that isn't the end of the story, for capital gains aren't the only source of returns for equity investors. What about dividends? Inflation is a cost, but no one should ignore dividends in tallying returns. Here's what the Dow chart looks like, including dividends and  after inflation, from 1999 onward:

Source: Author's calculations, based on data from S&P Dow Jones Indexes and the Bureau of Labor Statistics

As the chart shows, the 2000s were undoubtedly a tough decade for equity investors, but they were no "lost decade" -- even in real terms.

If you're looking to harness the power of dividends with for some long-term investing ideas, check out the Fool's special report: "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so just click here and get your copy today.

Read/Post Comments (1) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 10, 2013, at 12:11 PM, awallejr wrote:

    Good job Alex that last graph was the one I was interested in seeing.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2303453, ~/Articles/ArticleHandler.aspx, 9/28/2016 3:25:16 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,313.15 84.85 0.47%
S&P 500 2,167.12 7.19 0.33%
NASD 5,310.87 5.15 0.10%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/28/2016 3:10 PM
^DJI $18311.27 Up +82.97 +0.46%
^GSPC $2167.12 Up +7.19 +0.33%
S&P 500 INDEX CAPS Rating: No stars