Just sayin':
I know that some of you think I'm crazy for constantly adjusting everything in the world for inflation, but with rare exceptions it's always the right thing to do. Even for the stock market. If it's going up but not even beating inflation, then it's not really doing that great, is it?
Anyway, the S&P 500 is supposed to grow by some percentage every year, which means it should show exponential growth. But if you take its pre-pandemic performance and then fit an exponential trendline to it, it hasn't even recovered to its boring old trend. Some bull market.
Can you say quantitative easing?
Meh
Yah think THATs bad KD?
Take a look at this story:
https://www.yahoo.com/news/florida-orange-harvest-sees-worst-002759290.html
Well now, the Florida citrus crop is having another disastrous year now with a crop that is at pre-WWII levels !!!
Anita Bryant must be turning over in her grave, or grove. whatever
Florida is just a hot mess. Insurers pulling out, crops not coming in, Disney isn't doing too well and DeSantis is flailing about
And YOU are worried about whether or not to adjust your information for inflation?
Back in 1970, when I first visited Florida to see a total solar eclipse, I left the state with the impression that they should just cut the land at the Georgia border and let the whole state float away, but only if it would take all the people living there along with it.
I've visited Florida several times since then, and my opinion hasn't changed.
Adam
"I left the state with the impression that they should just cut the land at the Georgia border and let the whole state float away, but only if it would take all the people living there along with it."
Georgia isn't doing much better
https://www.cnn.com/2023/07/15/business/georgia-peach-shortage/index.html
{snip}
The Peach State lost more than 90% of this year’s crop after a February heat wave followed by two late-spring frosts. The triple-whammy destroyed peach varieties specifically bred to survive different weather scenarios and wildly inflated prices of the fruit. It also moved much of the local market — in some cases, quite unwillingly — to California peaches.
{snip}
Peaches, Oranges, grapefruits, tangerines etc all in very short supply all very highly priced. It will be interesting to see how this years corn crop is as it has been very dry across corn country.
This will continue to put "some" inflationary pressure on prices overall
I'm not quite sure what this is supposed to show us.
At the start of January 2014, the S&P 500 was priced at about $1800. Your chart shows it at $2400.
presented in current values
If this is 2023 (or whatever year one chooses) chained dollars, it does not reflect how the S&P 500 fared against inflation. To do that, you have to overlay it with an inflation index, or something like it, eg TIPS, or against constant dollars.
Alone, it doesn't show us anything useful.
If you move the points of reference (eg the year you "chain" the dollar value), you'll end up with different outcomes.
So I ask again, what's this supposed to show us?
After correcting to inflation, the market does go up. But it is not exponential, as it would be if growth went up a fixed percentage every year, e.g. 5%. After correcting to inflation, the current bull market is just getting the SP500 back to the trend line--not sending it to great new heights. Even if it gets to new highs, it still will be below past levels after adjusting for inflation.
I'd guess some of the recent gyrations are due to the pandemic and then the Fed's response, lower rates and quantitative easing, then the ending of those policies.
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It sure looks to me like the slope of the S&P is a good deal higher than the trendline, and the additional fact its value is rapidly moving back up to the line would be for me the very definition of a bull market. At least by this chart: a clear buying opportunity.
Kevin, the S&P 500 index does NOT include dividend returns. It is NOT a total return index indicator. So investments in an S&P 500 fund do better than your chart indicates.
This is a terrible analysis. Picking the right 10-year period can completely change the returns.
The S&P, assuming dividends are reinvested, has an annual return around 6.5% after inflation. If dividends aren't included it drops to around 2%. If you don't adjust for inflation the return is around 9.5%.
At least that's what this site says,
https://dqydj.com/sp-500-historical-return-calculator/
And then you have to apply taxes to it too.
Also, what beats it? Real estate? Maybe, but it's also hard to calculate, you have maintenance, property taxes, insurance, inflation, HOA's, buy/sell fees, realtor fees, etc., taxation is weird on property because it can be long-term in some states and the mortgage interest deduction. I doubt it's really a big winner either, it just looks like it from far away.
A 6% after inflation return will go a long way towards a retirement. But I also say that as someone who will get SS and a pension (albeit a below average one as CalPers pensions go).
I've used the Buffett indicator (total market assets / (GDP+fed assets)) as coarse tool for awhile but it has gone haywire of late (really, really high). It effectively takes inflation out of the equation.
Isn't investment return the one place you shouldn't adjust for inflation? The alternative to investing your money is keeping the money in cash, which of course does not increase in value to keep up with inflation. If you're comparing stocks to other types of investment, it doesn't matter if you adjust for inflation or not, as long as you're consistent between all the options.
Excuse me, but if "the S&P 500 is supposed to grow by some percentage every year, which means it should show exponential growth", then scale of the Y-axis **should be exponential**, not linear.
In other words, the scale on that axis should not have 500 point increments that are evenly spaced, if the point is to figure out what the exponential growth rate has been.
Also, probably more importantly, if the S&P 500 index IS consistently beating inflation, that's not exactly "boring". And if the amount by which it is beating inflation isn't as much in the past three years as in the prior six years, or even none at all, that's not exactly an earth-shaking analysis - obviously the stock market behaves differently in relatively short (less than 5-year, maybe less than 10-year) periods, as the economy fluctuates.
What ARE you supposed to do with your money?
Leave it in cash, then the value declines by inflation.
Invest in T Bills? then which ones? 1 month? 3 month? 6 month?
Then there are the tax effects. Shouldn't you tax effect the returns?
At what rate?
This is why you are 100% wrong to index it to inflation.
You need to do something with your money.