The DJIA Is Not the Economy

The graph above, illustrating the Dow-Jones Industrial Average compared to GDP, courtesy of Macrotrends, should reinforce something you already know: the DJIA is not the economy. They are farther apart now that at any time in history.

5 comments… add one
  • Grey Shambler Link

    No, It is not the economy, although many now have their retirement savings there because of criminally low interest rates.
    If I may throw out an open question, I’m seeing article after article regarding financial institutions hoarding cash because they fear inflation.
    It what world does this make sense?

  • walt moffett Link

    Graphic seems to be missing the GDP numbers (or at least that how it looks here).

    That said, agree and would propose alternative measures, the length of soup kitchen lines, public assistance case counts, repossessions, foreclosures and other measures that reflect how those below the median income are doing.

  • What’s being graphed is a ratio of GDP to DJIA.

  • Drew Link

    No, the equity indexes are not the economy. But that may be unnecessarily literal. “The economy” is the collective productive capital and labor capability, product and service demands, and elaborate interactions between and among them.

    However, the equities markets do represent the cash flows generated by the equity capital base. What that graph really represents is a valuation anomaly, driven by the artificial inability to achieve returns in the portion of the capital base offering preferred (in the capital structure sense) metered money terms. This has been well covered.

    What I find most interesting about the graph is the protracted relative decline in equities during the Great Inflation of the 60’s and 70s. It is often said that in inflationary times you want to own things like precious metals or real estate, or income producing capital assets, like a factory. Well, we have inflation. We shall see.

  • At this point the main cash flow represented by equities markets is within those markets and into the pockets of top managers. The link between the actual economy and the equities markets is demonstrably tenuous. Cf. price to earnings ratio. Pick any metric that relates the real economy to the equities markets.

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