Predicted Acceleration In DJIA Rise To Continue

In the 1970s inflation rose considerably and Mr. Volker’s action, intended to kill inflation, resulted in a doubling of the long bond yield. This kept the price of the stock market below its value despite the doubling of dividends over the period between 1973 and 1980. Equilibrium was finally achieved at the end of 1980 and remained there until the latter part of the 1990s. The crash of 1987 came about as result of the dividend discount value falling well below its price as long rates rose. The move to equilibrium picked up steam in the latter part of the 1970s even though the 30 year T Bond yield rose rapidly towards its all-time peak of 15.2%.

The same fear that held the market back in the 1970s would appear to be present today. Back then it took 8 years for value and price to reach equilibrium. Today it has been ten years, so far, since the two have been in equilibrium. However, the gap appears to have started to close over the past two years with the 65% rise in the DJIA price since early 2016. This acceleration is clearly seen in the following logarithmic chart with the price moving up relative to the exponential trend line.

Thus while some continue calling for an immediate crash in equities along with bonds, it appears unlikely during the remainder of the decade. So the rallying cry remains:

BUY the DJIA and take no Prisoners!

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David P. Goldsmith 3 years ago Member's comment

Buy the DJIA and take no Prisoners! I'll echo that.

Danny Straus 3 years ago Member's comment

How did you get the data for the DJIA dividend? Is that info easy to come by on a regular basis?

Tony Hayes CFA 3 years ago Author's comment

Dear Danny,

The DJIA dividend is published every week in Barron's market Lab.

Danny Straus 3 years ago Member's comment

Thanks Tony!