Adjusted Stock Price
Financial advisors will often tell us of the steady increases available only through the stock market and present us with beautiful charts showing the relentless march of the the stockmarket ever higher and to the right. But what about inflation? How does the stock market perform when inflation is taken into consideration? After we take the loss of purchasing power into account have all the gains disappeared?
When adjusting stock prices for inflation we typically use the US Bureau of Labor Statistics Consumer Price Index CPI-U. Prices are then calculated in “real” dollars. That means that the price is adjusted so that we can see what it would have cost if prices were what they are today. Today’s chart is courtesy of our friends at “Chart of the Day” and shows the inflation adjusted stock price using the DOW as the reference. The DOW however has a built in upward bias because it is not made up of the same stocks as it was in 1925. As stocks fall out of favor they are replaced by better performing ones. A better indicator of the overall market is the entire NYSE. In our Inflation Adjusted New York Stock Exchange you can see the trend for the overall stock market. ~ Tim McMahon, editor
Inflation Adjusted DOW
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. Also, the inflation-adjusted Dow is up 159% since its 1929 peak and trades 84% above its 1966 peak — not that spectacular of a performance considering the time frames involved. It is also interesting to note that the Dow is up 98% from its March 9, 2009 low which is actually slightly more than what the inflation-adjusted Dow gained from its 1966 peak to today.
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