US Stock Markets in Perspective

"Dow Index Flirts with new high" says today's New York Times. And it seems true. At 12773.04, America's flagship stockmarket is within reach of its all time high of 12,741.86, which it hit on 14 February 2007.

The S&P 500, a broader measure of the stockmarket, also closed on a good note at 1471.48. It is near its historical high of 1500.64 reached on 22 March 2000 - over 7 years ago.

Closer inspection of the stock market, however, is required to keep these results in perspective. Perhaps the most important element to note is the falling US Dollar. If you compare the value of the US Dollar to the Euro, a different picture emerges.

On 29 December 2006, the Dollar was worth
0.7593. As of 18 April 2007, the Dollar has dropped to 0.7355, a drop of 3.13% during the past 3 1/2 months.

If we then adjust the stockmarkets accordingly, more accurate figures come to light.

The Dow Jones, for example, has dropped by -0.69% since 29 December 2006. The S&P 500 has grown by +0.55% in that time. Hardly the stuff that bull markets are known for.

But it gets even worse. If we go back a number of years to the year 2000, we see the Dow Jones reaching its (then) high of 11722.98 on 14 January. At the time, though, the US Dollar was worth
0.978 (32.9% more than it is today). If we work backwards and adjust the figures, we find that the Dow Jones had hit 15588.14 on that day, compared to today's figure of 12773.04. This means that the Dow has dropped 18.06% in seven years.

The figures for the S&P 500 are similar. At the time of the 1500.64 high in March 2000, the US Dollar was worth
1.040, a whopping 41.4% more than its worth today. If we work backwards again, the S&P hit 2129.91 on that day, compared to today's figure of 1471.48. This means that the S&P 500 has dropped 30.91% in seven years.

The Wilshire 5000, an exceptionally broad stockmarket index, is notable for being a reasonably close fit for the amount of US Dollars invested into the stockmarket. Today's figure of 14910.93 (an all time record), represents $14.91 trillion invested. Back on 9 October 1990, this figure was 13099.90, and the US Dollar was worth a mammoth
1.15. In today's dollars, therefore, the Wilshire 5000's adjusted mark in October 1990 was an incredible 20484.04. This shows a drop of 27.2% in just under seven years, or approximately $7.4 trillion lost.

(On December 29 2006, the Wilshire 5000 reached 14,257.50. With a 3.13% drop in the value of the USD, today's figures would be 14,444.21, a growth of +1.31%)

Of course, back in 2000 both the stockmarket and the US Dollar were grossly overvalued, which makes for these interesting statistics. What it shows is that America's so called "recovery" in that period has been nothing of the sort. Another issue with this brief study of mine is the focus on the Euro as a "base" currency to compare to, which obviously has problems (a Trade Weighted Index may be better).

In the meantime, as you hear brokers on Wall Street and politicians crow about economic strength, just keep things in perspective. Since the beginning of this year, the US stock markets have gone nowhere, and have, in fact, declined sharply since the year 2000 when compared to the rest of the world.

Note: I am not a mathematical maven. Please inform me of any mistakes I have made in my calculations. I still think that the figures will be stark, however.

© 2007 Neil McKenzie Cameron, http://one-salient-oversight.blogspot.com/

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