Chart of the Day shows the Dow is higher, and lower, than you might think

It's always interesting to step back and look at the big picture in equities. The Dow Jones Industrial Average as an index is probably the best for looking at the long term in the U.S., and "Chart of the Day" has released an update of their long-term Dow chart. You need to understand that it's inflation-adjusted - which makes a huge difference in why it looks like the Dow hasn't come as far as you might think since the sixties (or for that matter, since 1929!). Their chart also uses logarithmic scale, which somewhat contributes to that compressed look (but logarithmic-scale charts are common, even if one reason is to adjust the view for inflation). Main thing is, the eroding dollar has made the Dow's rise over the decades seem higher than it really is. That's one reason why people bought stocks in the past, as a way to keep pace with inflation. But if another deflationary wave sets in, that would give stocks a nasty headwind.

But if the Dow does make a new low, it looks as though it would necessarily have to go as low as some are thinking, at least not in the near-term. There's obviously good support at the highs of the 1960's, and it would also be possible to get there over time that would line up with that lower uptrending channel line. And in-between, there can be more rallies depending on how the waves unfold. In any event - let's take a look at what "Chart of the Day" is seeing and saying about their inflation-adjusted Dow chart:

Chart of the Day
For some long-term perspective, today's chart illustrates the Dow adjusted for inflation since 1925. There are several points of interest. For one, when adjusted for inflation, the bear market that concluded in the early 1980s was almost as severe as the one that concluded in the early 1930s. Also, the inflation-adjusted Dow is now a little more than double where it was at its 1929 peak and trades a mere 51% above its 1966 peak – not that spectacular of a performance considering the time frames involved. It is also interesting to note that the Dow is up 54% from its March 9, 2009 low which is actually slightly more than what the inflation-adjusted Dow gained from its 1966 peak to today.

Quote of the Day
"History is a cyclic poem written by time upon the memories of man." - Percy Bysshe Shelley

Notes:
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