Category Archives: DJIA

We can’t emphasize enough how we are not stock market bulls.  We simply present the data. 

In fact, we have a bearish leaning bias after critically reading the work of Richard Russell from the 1990’s until his passing in 2015.  Below we are going to take an unusual and highly suspect look at the similarities between the S&P 500 Index and the Dow Jones Industrial Average.

Revealing the Truth about the Market

Many market observers complain how irrelevant the Dow Jones Industrial Average is, lacking 470 companies and being price weighted.  However, the Dow Jones Industrial Average is the perfect conservative model for future outcomes of the S&P 500 Index.

Did you know?

From a level of 810 to 2,749, on the S&P 500, it took approximately 5,820 trading days from February 24, 1997 to April 8, 2020.  In the same number of trading days, the Dow Jones Industrial Average increased from 810 on August 18, 1966 to 2,759 by October 12, 1989.

What the Dow Did was Staggering

If we step back from the already stunning revelation above and look at the bigger picture, there is more to this scenario than meets the eyes.  For example, our starting point at 1966, the Dow Jones Industrial Average was coming off of the biggest bull market in history.  From the low in 1942, the Dow increased from 92.92 to as high as 995.15 in 1966, a +971% increase.

A 10-fold increase sounds enticing, however, this was with the backdrop of rising interest rates and growing national debt.  For a sense of perspective on the overall sentiment at the time, the following is from Richard Russell’s Dow Theory Letter in 1967:

It wasn’t until the economy faced the uncertainty of interest rates (fear that rates would not continue to climb) in 1966, that the market fell apart and began trading in a range until 1982 (1966-1982).

What Does This Mean?

The Dow Jones Industrial Average was a stodgy heavy industry index when it managed to accomplish from 1966 to 1989 what the S&P 500 has accomplished in the heavily weighted technology index has accomplished from 1997 to 2020.  There should be critical questions for those who claim that the S&P 500 is better than the Dow Jones Industrial Average.

Based on the data above, there is absolutely zero difference between the two indexes when put into the proper context.  For now, we have painted a general picture of how the two indexes matched performance over exactly the same period of time.  In our next posting, we explore what the future holds for both indexes.

see also:

• Rising Rate Uncertainty
• Russell Review: 2011
• Russell Review: 1998
• Russell Review: 1996
• Russell Review: 1983
• Russell Review: 1979
• Russell Review: 1978
• Russell Review: 1977
• Russell Review: 1974
• Russell Review: 1973