The Markets Since Their 2000 Highs: We're Not Bouncing Back

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Includes: DIA, QQQ, SPY
by: Doug Short

The January Effect in 2012 was quite strong, and the U.S. markets have continued the rally that began last October. But let's take a step back and review the performance of the major US indexes in the 21st century through the end of January 2012.

Here is an update in response to a standing request from David England, a professor who has developed a popular college level stock market classes at John A. Logan College in Carterville, Illinois. David is also the founder of thetraderseye.com. In his upcoming presentations, he wants to disprove the standard message of Wall Street, "Don't worry! The market will always come back." I furnished David with some charts, and I shared them with regular visitors to my Advisor Perspectives pages.

Specifically, David had asked for real (inflation-adjusted) charts of the S&P 500, Dow 30, and Nasdaq Composite. So I created two overlays — one with the nominal price, excluding dividends, and the other with the price adjusted for inflation based on the Consumer Price Index for Urban Consumers (which I usually just refer to as the CPI).

The charts require little explanation. So far the 21st Century has not been kind to equity investors. Yes, markets usually do bounce back, but often in time frames that defy optimistic expectations. Investors in the Nikkei 225 have been waiting a long time for a return to the peak of 1989.

The charts above are based on price only. But what about dividends? Would the inclusion of dividends make a significant difference? I'll close this post with a reprint of my latest chart update of the S&P 500 total returns since the 2000 high.

Total return, including reinvested dividends, does not significantly change the trend.

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