When is a stock market record not a record? Investors may have shrugged off the latest round of Washington’s fiscal follies to finally push the Dow Jones Industrial Average
(INDEXDJX:.DJI) above its nominal all-time high set in October 2007, but by a couple of measures the new closing record of 14,253.77 set Tuesday isn’t quite as momentous a milestone.
First, as Daniel Wiener, chairman and CEO of Adviser Investment Management, points out, dividends count. Factoring in those dividend payments along with stock price changes, the Dow reached a new record on April 29, 2011 and then went on to set 31 more record highs in 2012 and 16 more records in 2013. “On a total return basis, the Dow Total Return Index
(INDEXDJX:DJITR) has actually been setting highs regularly since 2011,” Wiener wrote yesterday.
On the other hand, factoring in inflation over the last five and a half years leaves the index about 10 percent shy of the record. The Dow would have to get to 15,502 to match the inflation-adjusted level from October 2007, according to JPMorgan Chase
(NYSE:JPM). But adjusting for inflation also leaves the October 2007 peak shy of the real record reached in January 2000, when the Dow nominally hit 11722.98. To reach a new record when adjusting for inflation using 1994 dollars, the Dow would have to reach 16052.22, or 13 percent above Tuesday’s close, according to the Wall Street Journal
. Even including dividends, the index would have to rise several percentage points more to set an inflation-adjusted high.
The record books might have a new entry as of yesterday, but investors paying attention to the real-world returns they’re getting will have to wait to celebrate.
Editor's Note: This article by Yuval Rosenberg originally appeared on The Fiscal Times.
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