The New Peak of Dow Jones

[Hygro]

Dow Jones Index != stock market.

When you say "economy" what do you mean?

The movement of GDP.

 

[onejayhawk]

That's a very short time frame, but a nice illustration of relevance.

J

 

[saladincruz]

is there a graph that shows the lines going up and down with every trump tweet.

 

[Birdjaguar]

The DJ and S&P do tend to track together, but the larger diversity of the S&P makes it closer to the Total Market Index.

Now can we find a graph that shows GDP growth over time and the S&P/DJ growth over time so that they can be easily compared?

 

[caketastydelish]

Thank you, Mr. Trump. Things have never been this good!

 

[Hrothbern]

The DJ and S&P do tend to track together, but the larger diversity of the S&P makes it closer to the Total Market Index.
Now can we find a graph that shows GDP growth over time and the S&P/DJ growth over time so that they can be easily compared?

They are not coupled enough:
" In fact, since 1950, the S&P 500 median return is 13% (average is 12%) when real gross domestic product (GDP) grows less than 3%, with the S&P generating a positive return 68% of the time. However, a good portion of those returns come during recessions — historically, the best time to buy stocks is at recession troughs. But even if we take those periods in and around recessions out of the equation and look at annual returns when GDP growth is between 1–3%, the median (and average) S&P 500 return is a respectable 7–8%. Stocks tend to like average (or slightly below average) growth, which is not strong enough to generate worrisome inflation"
http://www.businessinsider.com/sp-is-not-gdp-2014-11?international=true&r=US&IR=T
The article lists up some reasons why: S&P more dominated by manufacturing, GDP by consumer spending. S&P making increasing earning outside US now 40%, GDP 10%

 

[Hygro]

The DJ and S&P do tend to track together, but the larger diversity of the S&P makes it closer to the Total Market Index.

Now can we find a graph that shows GDP growth over time and the S&P/DJ growth over time so that they can be easily compared?

for some upsetting reason their stock prices only go back to 2007. this wasn't true using fred a few years back, you could get prices back a century. I had a graph showing that while the stock market exaggerates the moves, it tracks the direction of GDP.

 

[Mise]

Didn't realise it tracked that closely on a quarterly basis. I assume that on a monthly, weekly, or daily basis the exaggeration is much more prominent. Fundamentally, one would expect them to correlate over the long term, but be affected by various events and so on in the short term.

I wonder if that graph is influenced by the fact that the Fed has hardly changed rates over that period? E.g. do stock markets change more quickly (on a quarterly basis) when interest rates change, whereas the GDP impact happens over longer timescales?

 

[onejayhawk]

The DJ and S&P do tend to track together, but the larger diversity of the S&P makes it closer to the Total Market Index. Now can we find a graph that shows GDP growth over time and the S&P/DJ growth over time so that they can be easily compared?

Fred will do that, but it's a pay service.

They are not coupled enough:
" In fact, since 1950, the S&P 500 median return is 13% (average is 12%) when real gross domestic product (GDP) grows less than 3%, with the S&P generating a positive return 68% of the time. However, a good portion of those returns come during recessions — historically, the best time to buy stocks is at recession troughs. But even if we take those periods in and around recessions out of the equation and look at annual returns when GDP growth is between 1–3%, the median (and average) S&P 500 return is a respectable 7–8%. Stocks tend to like average (or slightly below average) growth, which is not strong enough to generate worrisome inflation"
http://www.businessinsider.com/sp-is-not-gdp-2014-11?international=true&r=US&IR=T
The article lists up some reasons why: S&P more dominated by manufacturing, GDP by consumer spending. S&P making increasing earning outside US now 40%, GDP 10%

The market is dominated by profits and the economy is dominated by sales, irrespective of profits. There is going to be slippage, but there is still a strong tie.

J

 

[civvver]

Well I think there are tons of reasons stocks are going high that don't necessarily reflect the overall state of the us economy.

-US companies are making a lot of profits even if household income and other economic measurables are stagnant.
-Productivity is rising and workers and middle class see less of a chunk of the results of this. Which means economic growth doesn't look as impressive even if companies show big profits.
-A lot of the growth in the US economy goes to the top 1% which invests their money a lot more than the middle class does
-Trump has promised big tax breaks for corporations which means future earnings should be bolsters which motivates investment
-Trump has promised better gains taxes which also provides incentive to invest
-Interest rates were record lows for almost a decade, are still near record lows, so leaving your money in the bank is actually costing you money compared to inflation. The alternative investment? Stocks and mutual funds
-Low interest rates hammer bond returns so again all those people in 401k's are putting their money into stocks. It's better to make ~30% over two or three years and then suffer through a 10-20% correction than to make like 1-2% those same three years.

The us economy isn't doing bad though, just not growing in terms of GDP like it used to. But we're pretty much at full employment which is part of why trump trying to ban certain work visas seems preposterous. Americans who want jobs can get them fairly easily.

What we really need to look at are making sure incomes grow relative to economic growth and wealth distribution and policies that help this along, and at controlling health care costs since the brunt of those seem to fall on the middle class in terms of premiums.

 

[tuckerkao]

Stock market crash is a super shock event most investors familiar with, it happened by the end of year 2008 last time, also significant money may disappear within the matter of hours.

When should you sell the stocks to prevent yourself from hurt by this red alert showing below?

Perhaps the correct time already near.

 

[onejayhawk]

If the market dies crash, I want to be able to buy the next day.

J

 

[civvver]

The 2009 crash recovered in about two and a half years. Now that’s a long time if you’re retired and only have stocks to live off of, but for normal working people who mostly invest in retirement accounts that’s nothing just keep buying during the down turn and you’ll come out way ahead. I had just started out in 2007, in 2008 I bought a car, 2009 bought a ring and got married and I took a 15% paycut cus our company didn’t want to do layoffs. So I was dead broke and pause contributions. I was only putting in a couple thousand a year but it would be worth a lot more now. Big mistake.

So if it’s money you plan to keep in the market 10, 20, 30 years id just leave it cus you won’t sell at the high or buy at the low. But systematically. If it’s money you want for a specific purpose like to buy a house or something just pick a date or price point and do it.

 

[Colon]

When you look at the accounts of the BEA, aggregate corporate profits have been basically flat since the 2nd quarter of 2014 (and arguably for longer), whereas compensation of employees have risen by a tenth since then. That dovetails with BLS' data of unit labor costs: in 2015 hourly compensation rose 1.7% faster than productivity, and 1% faster during 2016. In the first quarter of 2017 compensations again grew by 0.8% more (year-on-year), while they grew equally fast in the 2nd quarter. This says nothing about disparity between wage earners, but right now it's not the case that corporate profits are making up a growing share of national income. On the contrary, it's everything else that's growing while profits are flat.

 

[Ajidica]

Stock market crash is a super shock event most investors familiar with, it happened by the end of year 2008 last time, also significant money may disappear within the matter of hours.

It was less a single shocking collapse, like some sort of financial lightening bolt, but more of an oncoming forest fire. In September 2007 we had a major bank (BNP Paribas I think) admitting to the general public, that they had no idea how much their mortgage funds were worth because they had no idea how much the underlying CDOs were worth. It kept sputtering along because nobody had the imagination to really take it seriously until there literally was a meltdown with multiple US banks (and multiple foreign banks, like Northern Rock) going all Hindenburg on us.

 

[onejayhawk]

The 2009 crash recovered in about two and a half years. Now that’s a long time if you’re retired and only have stocks to live off of, but for normal working people who mostly invest in retirement accounts that’s nothing just keep buying during the down turn and you’ll come out way ahead. I had just started out in 2007, in 2008 I bought a car, 2009 bought a ring and got married and I took a 15% paycut cus our company didn’t want to do layoffs. So I was dead broke and pause contributions. I was only putting in a couple thousand a year but it would be worth a lot more now. Big mistake.

So if it’s money you plan to keep in the market 10, 20, 30 years id just leave it cus you won’t sell at the high or buy at the low. But systematically. If it’s money you want for a specific purpose like to buy a house or something just pick a date or price point and do it.

One of my best decisions was to borrow on my 401(k) to pay off a double digit mortgage. It was in 2007, so about 80% of that money was still out of the market during the 2008 crash. I paid myself 9% flat on the balance, while payments bought back into the market at lower prices. The balance went from $8000 plus $11,000 loan principle to $50,000 in seven years, when the loan was retired.

J

 

[tuckerkao]

We got another new high today, the 22,800+ finish just landed. Although Dow lost points on both last Friday and this Monday, the gain is far more greater today especially during the last minutes before the close.

Trump's stock rally was really wise, not easy to notice, more small declines and few large gains.

 

[Birdjaguar]

The slow, small step rises in the S&P over the past few years has been awesome. Baring some "big event", I expect it to mostly continue given that a correction might happen.

 

[civvver]

One of my best decisions was to borrow on my 401(k) to pay off a double digit mortgage. It was in 2007, so about 80% of that money was still out of the market during the 2008 crash. I paid myself 9% flat on the balance, while payments bought back into the market at lower prices. The balance went from $8000 plus $11,000 loan principle to $50,000 in seven years, when the loan was retired.

J

Was that a conscious decision or just luck with the timing?

I did put my entire tax refund of a few thousand dollars in the market in 2009 and 2010 and it doubled, but I ended up losing all the profits on speculative options.

 

[Lexicus]

Has our economic growth really been boosted that much or is it just the bubble effects magnified from the Wall Street stock market?

As Ajidica has already pointed out, the Dow Jones is not to be identified with "economic growth." I would go further than he has and say that the Dow Jones is largely worthless and should be ignored, while GDP growth is adequate for back-of-the-envelope calculations but doesn't tell you much about how the economy is doing for Bob the Citizen (which, ultimately, should be the sole concern of economic policy discussion).

You're picking an awful time to be arguing this. Hourly earning rose by an annualized ~5% over the past 3 months in the US.

I would like to see the data source for this claim, and an explanation of how it relates to the claim that the vast majority of economic growth in the US is going directly into the pockets of the very rich.

It was less a single shocking collapse, like some sort of financial lightening bolt, but more of an oncoming forest fire. In September 2007 we had a major bank (BNP Paribas I think) admitting to the general public, that they had no idea how much their mortgage funds were worth because they had no idea how much the underlying CDOs were worth. It kept sputtering along because nobody had the imagination to really take it seriously until there literally was a meltdown with multiple US banks (and multiple foreign banks, like Northern Rock) going all Hindenburg on us.

Let's be clear: the reason they didn't know is because they were engaged in a massive criminal scheme one of the essential points of which was that they stopped underwriting mortgages on purpose. As Bill Black called it, "the financial version of don't ask don't tell."