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 paymentsThis 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 bogie.

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.

About Craig Lazzara
Craig Lazzara is global head of index investment strategy for S&P Dow Jones Indices. The index investment strategy team provides research and commentary on the entire S&P Dow Jones Indices’ product set, including U.S. and global equities, commodities, fixed income, and economic indices.

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