Stock Prices Adjusted for Inflation

Sunday, June 11, 2006 | 06:48 AM

In the 100-year Dow Chart post yesterday, the following issue was raised in comments:

It would be nice to see your "100 Year Chart , DJIA" deflated by some ''inflation'' indicator (either consumer price index or wholesale price index or earnings index or commodities index or real estate index), or at least in a logarithmic scale.

Indeed it might be even better to see it overlaid with all those indices, to give a sense of perspective as to available macro trend investment choices...

Thormika Keo took up the challenge:  he went to Yale Professor Robert Shiller's website, downloaded Shiller's data for the Real S&P500, and overlaid it with our periods for for each bull and bear market.

This is what it looks like:

Inflation Adjusted SPX, 100 years, with Bull Bear Cycles

Modifiedshiller_1

Adjusting for inflation puts the Bull and Bear periods into even sharper relief. It also shows how totally bubblicious the late 1990s were, and why many strategists and technicians started pulling in their horns in the mid-1990s. 

If you want to see this chart in its full 1020 X 554 glory, you can download it here: modifiedshiller.jpg

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There is also a CPI adjusted Dogs of the Dow, here.

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With this post, we add the sub-topic "Valuation" to our list.


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UPDATE JUNE 11, 2006 1:54PM

I am out on a sunny Sunday, doing some gardening, washing the car, when I come into to see a cry coming from the crowd: We want Log charts! We want Log charts!

And logarythmic charts ye shall have:

Inflation Adjusted SPX, 100 years, with Bull Bear Cycles (LOG)

Inflation_adj_spx_logarythmic

Sunday, June 11, 2006 | 06:48 AM | Permalink | Comments (28) | TrackBack (0)
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Comments

A wide-ranging chart such as this must be displayed with logarithmic vertical axes, instead of linear, to prevent the lower values from vanishing into apparent insignificance. With logarithmic vertical axes, a vertical displacement of an inch, for example, would represent a constant percentage change over the entire chart, which is what you should really want.

Regards, Don

Posted by: Don Lloyd | Jun 11, 2006 8:05:58 AM

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