The Wall Street Journal says things are looking up:
Last year’s widespread skepticism proved to be misplaced.... Now, with the S&P 500 within 0.6% of a record high, the crowd is much more optimistic.
I know it's traditional to report stock market indexes in nominal terms, but that doesn't make it right. It's just a scam that allows new "records" to be announced routinely so that things always look more bullish than they really are. Here's the S&P 500 over the past three years in real terms:
The market did fine this year, but it's not within 0.6% of a record high. It's not even close. It's still got 400 points to go.
I assume KD is calculating dividends paid in his all in returns, adjusted for inflation. If not the ROI calculation is incomplete. Also timing counts for a whole lot. If you bought in October 22, you are doing just fine while a buy in around October 21, you are not so good.
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Yes, he is including dividends. The chart Kevin presents is taken from here (or some place that presented the same data): https://www.officialdata.org/us/stocks/s-p-500/2020
Scroll down to the "Adjusting stock market return for inflation" section. If anyone wanted to make a complaint, it's that the market looks a lot better if start in January, 2020 rather than January, 2021. However, since Kevin's point is that is not about whether the market has been a good investment, and is just the much narrower case that we aren't that close to a record high, it's fine.
Um, I'm not sure about that. If he's adjusting for dividends too, he ought to state that. (He typically has not included dividends when doing this in the past, but the best practice is do both. Otherwise, it's distorting.)
Chart at your link cuts off in 8/23 so it's hard to compare. Chart at the following link provides a better long-term view. Also, you can adjust dates and investments, if that's your thing.
https://totalrealreturns.com/s/VFINX,SPY?
It looks like KD's numbers may be close. Anyway, here's the SPY figures for total real return, based on EOY 2023 close.
Since 1/4/21: +14.1%
Since 12/29/22 (market peak): -7.0%
Market is well above long-term trendline and looking strong heading into 2024.
ETA:
SPY numbers:
2021-01-01: 416.64 (open)
2022-12-29: 511.07 (peak)
2023-12-29: 475.31 (close)
The Fed did a good job of propping up the stock market during Covid.
A good point in general, but watch those inflation-adjustment calculations. Depending on exactly which index, and over which time period, you use to measure "inflation," your "inflation-adjusted" results can vary sharply given the craziness of the past 3-4 years.
No matter. I’ll take it just the same…
Dunking on the small stuff is kind of a pointless exercise. Point out what other investment would have provided a better return. Not TIPS. Not CDs. Not housing. Not munis.
Kevin's post is not about investment advice, it's about accuracy in reporting. His point, which he tells us frequently, is that citing statistics about prices (of anything) ought to consider inflation.
The point he didn't mention explicitly, but which I think he would agree with, is that when the quote comes from a leading financial journal paper, then that oversight is particularly egregious.
There's nothing inaccurate about the WSJ reporting. It says the S&P 500 is nearing a "record high," and that's a fact. It's not a "scam," as KD says, or "egregious," as you do.
There is a long list of good reasons why stock prices are regularly reported in nominal terms. That will continue to be the practice in the future.
Providing total real return data can provide some useful context, and no doubt the WSJ publishes stories about real returns too. But to report on market performance in adjusted terms as a regular practice would be madness.
...citing statistics about prices (of anything) ought to consider inflation.
That "anything" in there does not include the price of investments like stocks. They're fundamentally different than goods and services bought and sold in the economy.
Agreed. Inflation adjusted numbers are very useful, but nominal dollars are how the market operates. If my stocks go up $1,000 and I sell them I then pay tax on that $1,000. The IRS doesn’t account for inflation.
The bond market pays more attention to inflation. Bond purchasers expect a return above inflation so bond yields at least partly reflect what people think inflation is or will be in the near future.
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Let me rephrase that.
So KD, how did other investment vehicles perform, adjusted for inflation, comparably to the S&P 500?
Me too, I'm only back to a 2021 high...after being devastated in 2021, (seriously destroyed), there's nothing special in this recovery...it's just gambling to me, no different than an older gray haired woman sitting endless hours at the nickel slots in Reno....(at least I am not lying to myself).
The question is when to take money off the table, with the contaminant problem of a short term capital gains problem....which can be, honestly, a severe problem.
The market is just sport, and since most of my clients are poor, about the only way I've ever made any money. It's a gamble. So is life. Traveller
PS Often just typing something helps you think your way through the a problem. I think I know a path forward on my Gains problem. Thanks.
I know I’m dreaming but when does this market include costs of climate change disaster?
Non sequitur, like asking when screw drivers will be good hammers. Of course depending on specifics, corporations pay insurance and insurance companies are starting to price in climate risks for specific types of operations. This of course is irrelevant to some sectors, while extremely relevant to others.
When people in the market expect to see climate change affect the value of their investments in the near future then you’ll see people either enter new investments or shed old ones based on this information.
Markets don’t respond well to something happening at some indefinite time in the future.
Reporting in nominal terms makes more sense because one's portfolio is measured in nominal terms, it is not adjusted for inflation. Reporting stock prices in inflation-adjusted terms would be like getting a bank statement in inflation-adjusted terms.
Reporting prices in dollars makes sense if it's the price that's the point of the report. Your portfolio may in fact be near a record high. But using a phrase like "a record high" without mentioning the devaluation effect of inflation is, at best, a little misleading to folks who aren't particularly economics-literate. The Podunk Weekly may be forgiven that type of reporting shortcut. The Wall Street Journal should know better.
Agreed. Kevins obsession with adjusting everything for inflation often does not provide any clarity or understanding to the situation he is addressing.
Inflation adjusted values can be very misleading when we live and do transactions in a nominal world.
Yes agree - running around naively deflating everything (without attention per se to usage, time horizon etc) is not necessarily an improvement over naive non-deflation - notably on short time scales.
Drum's deflation obsession is something like a new student's who's just gotten a concept and then willy nilly applies it everywhere without necessarily understanding if it is appropriate or effective.