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Dow Jones Industrial Average Return Rate vs. Inflation Adjusted GDP Growth Rate
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DJIA Return Rate
Simultaneous Change
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DJIA Return Rate
Subsequent Change
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1% Rise in 1 Yr Inflation Adj GDP Growth Rate
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1% Fall in 1 Yr Inflation Adj GDP Growth Rate
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period, (from 5% to 6% for example) has typically been accompanied by a 5.68% Dow
Jones Industrial Average Return Rate decline during that year and a 0.83% Dow
Jones Industrial Average Return Rate increase the following year.
It also indicates that a 1% Inflation Adjusted GDP Growth Rate decline over a 12
month period, (from 5% to 4% for example) has typically been accompanied by a
5.50% Dow Jones Industrial Average Return Rate increase during that year and a
0.34% Dow Jones Industrial Average Return Rate decline the following year.
The center column shows the change in the Dow Jones Industrial Average Return
Rate over 12 months, depending on whether the period experienced a rising or falling
Inflation Adjusted GDP Growth Rate. The right column shows the change in the Dow
Jones Industrial Average Return Rate during the year following an increase or
decrease in the Inflation Adjusted GDP Growth 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 Inflation
Adjusted GDP Growth Rate to predict the future direction of the Dow Jones
Industrial Average Return Rate is significant (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 Inflation Adjusted GDP Growth Rate and
the Dow Jones Industrial Average Return Rate. Suppose you are making a business
or investment decision. Suppose again that the decision hinges on whether the
Inflation Adjusted GDP Growth Rate and the Dow Jones Industrial Average Return
Rate tend to move in the same or opposite directions. The data, graphs, and analysis
above will enlighten you. You'll discover whether they move with, inversely to, or
independently of each other.
Suppose that the Inflation Adjusted GDP Growth Rate has risen sharply and that you
need to know what direction the Dow Jones Industrial Average Return Rate is headed
in the near future. Does the recent increase in the Inflation Adjusted GDP Growth
Rate provide a clue about the future direction of the Dow Jones Industrial Average
Return Rate? The History of the Dow Jones as seen in the data history, graph, and
analysis above will show you how the DJIA Return Rate has performed after increases
in the Inflation Adjusted GDP Growth 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 Inflation Adjusted GDP Growth Rate:
1) Change in the Dow Jones Industrial Average Return Rate DURING periods with a
rising Inflation Adjusted GDP Growth Rate:
The abbreviated formula is: (Dow Jones Industrial Average Return Rate Change /
Inflation Adjusted GDP Growth Rate Rise) x 1% = Published Rate.
The complete formula is: [(Average change in the Dow Jones Industrial Average
Return Rate over all rolling 12 month periods with a rising Inflation Adjusted GDP
Growth Rate) / (Average Rise in the Inflation Adjusted GDP Growth Rate over the
same 12 month periods)] x 1% = Published Rate.
2) Change in the Dow Jones Industrial Average Return Rate AFTER a rising Inflation
Adjusted GDP Growth Rate:
The abbreviated formula is: (Subsequent Dow Jones Industrial Average Return Rate
Change / Inflation Adjusted GDP Growth Rate Rise) x 1% = Published Rate.
The complete formula is: [(Average change in the Dow Jones Industrial Average
Return Rate during the 12 months following any rolling 12 month base period with a
rising Inflation Adjusted GDP Growth Rate) / (Average Rise in the Inflation Adjusted
GDP Growth Rate over the 12 month base periods)] x 1% = Published Rate.
Formula for periods with a declining Inflation Adjusted GDP Growth Rate:
1) Change in the Dow Jones Industrial Average Return Rate DURING periods with a
declining Inflation Adjusted GDP Growth Rate:
The abbreviated formula is: (Dow Jones Industrial Average Return Rate Change /
Inflation Adjusted GDP Growth Rate Decline) x -1% = Published Rate.
The complete formula is: [(Average change in the Dow Jones Industrial Average
Return Rate over all rolling 12 month periods with a declining Inflation Adjusted GDP
Growth Rate) / (Average decline in the Inflation Adjusted GDP Growth Rate over the
same 12 month periods)] x -1% = Published Rate.
2) Change in the Dow Jones Industrial Average Return Rate AFTER a decreasing
Inflation Adjusted GDP Growth Rate:
The abbreviated formula is: (Subsequent Dow Jones Industrial Average Return Rate
Change / Inflation Adjusted GDP Growth Rate Decrease) x -1% = Published Rate.
The complete formula is: [(Average change in the Dow Jones Industrial Average
Return Rate during the 12 months following any rolling 12 month base period with a
declining Inflation Adjusted GDP Growth Rate) / (Average decline in the Inflation
Adjusted GDP Growth 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.
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