|
Historical DJIA Return Rate vs. 30 Year Mortgage Rate: Analysis
|
|
|
|
|
|
DJIA Return Rate
Simultaneous Change
|
|
|
|
|
DJIA Return Rate
Subsequent Change
|
|
|
|
|
1% Rise in 30 Year Mortgage Rate over 1 Year
|
|
|
|
|
|
|
1% Decline in 30 Year Mortgage Rate in 1 Year
|
|
|
|
|
|
|
|
What does the table mean?
It indicates that a 1% 30 Year Mortgage Rate increase over a 12 month period, (from
5% to 6% for example) has typically been accompanied by a 7.08% DJIA Return Rate
decline during that year and a 5.61% DJIA Return Rate increase the following year.
It also indicates that a 1% 30 Year Mortgage Rate decline over a 12 month period,
(from 5% to 4% for example) has typically been accompanied by a 7.13% DJIA Return
Rate increase during that year and a 5.49% DJIA Return Rate decline the following
year.
The center column shows the change in the Historical DJIA Return Rate over 12
months, depending on whether the period experienced a rising or falling 30 Year
Mortgage Rate. The right column shows the change in the DJIA Return Rate during
the year following an increase or decrease in the 30 Year Mortgage Rate.
The data history in the middle column shows a strong tendency for the two
rates to move inversely to each other during the same time period.
The evidence for using the previous 12 month change in the 30 Year
Mortgage Rate to predict the future direction of the DJIA Return Rate is
strong (right column).
Annual rates are shown in the graph and calculations.
How Do I Use This Information?
There are many investment theories that are well publicized in the financial press.
Even though little or no historical data may be offered as evidence for such theories,
many investors use them subconsciously, if not intentionally.
Example Theories: Rising Inflation is bad for the stock market. A booming housing
market is good for the S&P 500 stock index. A falling fed funds rate means that long
term interest rates will fall.
There are many such theories. In this site, long term investment and economic data
is tested against decades to determine whether a relationship actually exists or not.
This historical correlation provides a vital aid in interpreting the often confusing
behavior of the financial markets. The perspective gained may be the difference
between staying the course or being blown and tossed by every investment theory
that is popular at the moment. What the majority assumes to be true, often is not. In
the final analysis, readers are admonished to follow the evidence, wherever it leads.
This page tests the relationship between the 30 Year Mortgage Rate and the DJIA
Return Rate. Suppose you are making a business or investment decision. Suppose
again that the decision hinges on whether the 30 Year Mortgage Rate and the DJIA
Return Rate tend to move in the same or opposite directions. The data, Historical
DJIA Chart, and analysis above will enlighten you. You'll discover whether they move
with, inversely to, or independently of each other.
Suppose that the 30 Year Mortgage Rate has risen sharply and that you need to
know what direction the DJIA Return Rate is headed in the near future. Does the
recent increase in the 30 Year Mortgage Rate provide a clue about the future
direction of the DJIA Return Rate? The Historical DJIA Chart, and analysis above will
show you how the DJIA Return Rate has performed after increases in the 30 Year
Mortgage Rate. You'll see if one indicator has been likely to signal a change in
another. This is not intended as a prediction, but merely as a clue to the future from
the annals of history. No man knows the future, unless he has the ability to control the
future.
This site compares data series for interest rates, stock indexes, economic indicators,
currency exchange rates and real estate values. Suppose that you want to see how
stock indexes are influenced by interest rates or the value of the dollar. Click one of
the stock index links on the right side of any page. Links to our multi-series graphs
and correlation analysis may be found at the bottom-center of the stock index pages.
Formula for periods with a rising 30 Year Mortgage Rate:
1) Change in the Historical DJIA Return Rate DURING periods with a rising 30 Year
Mortgage Rate:
The abbreviated formula is: (Historical DJIA Return Rate Change / 30 Year Mortgage
Rate Rise) x 1% = Published Rate.
The complete formula is: [(Average change in the Historical DJIA Return Rate over all
rolling 12 month periods with a rising 30 Year Mortgage Rate) / (Average Rise in the
30 Year Mortgage Rate over the same 12 month periods)] x 1% = Published Rate.
2) Change in the Historical DJIA Return Rate AFTER a rising 30 Year Mortgage Rate:
The abbreviated formula is: (Subsequent Historical DJIA Return Rate Change / 30
Year Mortgage Rate Rise) x 1% = Published Rate.
The complete formula is: [(Average change in the Historical DJIA Return Rate during
the 12 months following any rolling 12 month base period with a rising 30 Year
Mortgage Rate) / (Average Rise in the 30 Year Mortgage Rate over the 12 month
base periods)] x 1% = Published Rate.
Formula for periods with a declining 30 Year Mortgage Rate:
1) Change in the Historical DJIA Return Rate DURING periods with a declining 30
Year Mortgage Rate:
The abbreviated formula is: (Historical DJIA Return Rate Change / 30 Year Mortgage
Rate Decline) x -1% = Published Rate.
The complete formula is: [(Average change in the Historical DJIA Return Rate over all
rolling 12 month periods with a declining 30 Year Mortgage Rate) / (Average decline
in the 30 Year Mortgage Rate over the same 12 month periods)] x -1% = Published
Rate.
2) Change in the Historical DJIA Return Rate AFTER a decreasing 30 Year Mortgage
Rate:
The abbreviated formula is: (Subsequent Historical DJIA Return Rate Change / 30
Year Mortgage Rate Decrease) x -1% = Published Rate.
The complete formula is: [(Average change in the Historical DJIA Return Rate during
the 12 months following any rolling 12 month base period with a declining 30 Year
Mortgage Rate) / (Average decline in the 30 Year Mortgage Rate over the 12 month
base periods)] x -1% = Published Rate.
Rolling 12 Month Periods Defined:
Overlapping 12 month periods in a monthly data base.
For example:
In the 24 month period included in 2000 - 2001, there are 13 complete rolling 12
month periods. The first is January, 2000 - December, 2000. The second is February,
2000 - January, 2001. The third is March, 2000 - February, 2001 and so on. The last
complete rolling 12 month period in the 2000 - 2001 period is January, 2001 -
December, 2001.
|
|
|
|
|
