This morning’s Wall Street Journal brought word that the Dow Jones Industrial Average, which reached nominal all-times highs earlier this month, was in fact still 1% below “the record that counts,” which record is argued to be the all-time high in inflation-adjusted terms. The analysis uses the price of the Dow Industrials (e.g., last Friday’s closing value of 16,064.97), but excludes the effects of dividend payments. This is an unfortunate — nay, fatal — omission.
Which the Journal admits, in a backhanded way: “If you add in the effect of dividends…the Dow probably hit a real record some months ago.” To be specific: since the DJIA’s peak on January 14, 2000, the price of the Index has risen by 37%, while consumer price inflation has risen 38%. On a total return basis, however, the Dow has appreciated 91% since 2000 — well above the same 38% inflation bogey.
Adding in the effect of dividends shows that the Dow did indeed hit a real record some months ago — 23 months ago, to be precise. On December 20, 2011, the DJIA closed at 12,103.58, only 3% above its 2000 peak, and well below the intervening inflation rate of 34%. On a total return basis, the Dow’s close that day was 37% above its 2000 peak level. Between then and now, the DJIA’s total return has remained well above the rate of inflation — which means that the record that counts has already been broken.