
Dow Jones Industrial Return Rate vs. Prime Rate: Analysis






DJIA Return Rate Simultaneous Change





DJIA Return Rate Subsequent Change





1% Rise in Prime Rate over 1 Year







1% Decline in Prime Rate over 1 Year








It indicates that a 1% Prime Rate increase over a 12 month period, (from 5% to 6% for example) has typically been accompanied by a 4.83% Dow Jones Industrial Return Rate decline during that year and a 1.07% Dow Jones Industrial Return Rate increase the following year.
It also indicates that a 1% Prime Rate decline over a 12 month period, (from 5% to 4% for example) has typically been accompanied by a 4.90% Dow Jones Industrial Return Rate increase during that year and a 0.90% Dow Jones Industrial Return Rate decline the following year.
The center column shows the change in the Dow Jones Industrial Return Rate over 12 months, depending on whether the period experienced a rising or falling Prime Rate. The right column shows the change in the Dow Jones Industrial Return Rate during the year following an increase or decrease in the Prime 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 Prime Rate to predict the future direction of the Dow Jones Industrial 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 Prime Rate and the Dow Jones Industrial Return Rate. Suppose you are making a business or investment decision. Suppose again that the decision hinges on whether the Prime Rate and the Dow Jones Industrial Return Rate tend to move in the same or opposite directions. The data, Dow Jones Chart, and analysis above will enlighten you. You'll discover whether they move with, inversely to, or independently of each other.
Suppose that the Prime Rate has risen sharply and that you need to know what direction the Dow Jones Industrial Return Rate is headed in the near future. Does the recent increase in the Prime Rate provide a clue about the future direction of the Dow Jones Industrial Return Rate? The data history, Dow Jones Chart, and analysis above will show you how the Dow Jones Industrial Return Rate has performed after increases in the Prime 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 multiseries graphs and correlation analysis may be found at the bottomcenter of the stock index pages.
Formula for periods with a rising Prime Rate: 1) Change in the Dow Jones Industrial Return Rate DURING periods with a rising Prime Rate: The abbreviated formula is: (Dow Jones Industrial Return Rate Change / Prime Rate Rise) x 1% = Published Rate.
The complete formula is: [(Average change in the Dow Jones Industrial Return Rate over all rolling 12 month periods with a rising Prime Rate) / (Average Rise in the Prime Rate over the same 12 month periods)] x 1% = Published Rate.
2) Change in the Dow Jones Industrial Return Rate AFTER a rising Prime Rate: The abbreviated formula is: (Subsequent Dow Jones Industrial Return Rate Change / Prime Rate Rise) x 1% = Published Rate.
The complete formula is: [(Average change in the Dow Jones Industrial Return Rate during the 12 months following any rolling 12 month base period with a rising Prime Rate) / (Average Rise in the Prime Rate over the 12 month base periods)] x 1% = Published Rate.
Formula for periods with a declining Prime Rate: 1) Change in the Dow Jones Industrial Return Rate DURING periods with a declining Prime Rate: The abbreviated formula is: (Dow Jones Industrial Return Rate Change / Prime Rate Decline) x 1% = Published Rate.
The complete formula is: [(Average change in the Dow Jones Industrial Return Rate over all rolling 12 month periods with a declining Prime Rate) / (Average decline in the Prime Rate over the same 12 month periods)] x 1% = Published Rate.
2) Change in the Dow Jones Industrial Return Rate AFTER a decreasing Prime Rate: The abbreviated formula is: (Subsequent Dow Jones Industrial Return Rate Change / Prime Rate Decrease) x 1% = Published Rate.
The complete formula is: [(Average change in the Dow Jones Industrial Return Rate during the 12 months following any rolling 12 month base period with a declining Prime Rate) / (Average decline in the Prime 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.




