Despite media reports of record highs in the stock market, the actual value of the dollar remains below its 2021 peak. Inflation is causing some of the rise in stock market prices, making it important to use inflation-adjusted data for accurate value comparisons.
Analysts suggest looking at the nominal stock indexes such as the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite, alongside the inflation index for comparison (the CPI – All Items index). This can help determine the actual impact of inflation on the stock market and provide a clearer picture of value.
By looking at the “real” (inflation-adjusted) indexes, a more accurate growth-in-value picture emerges, showing that the inflation-adjusted indexes are still below their 2021 peak monthly closes. This indicates that while stock prices may be higher in nominal terms, the actual value of assets remains lower due to inflation.
Many articles suggest that the recent stock market movements indicate a new bull market, but the “real,” inflation-adjusted indexes do not support this claim. The Federal Reserve’s expected cut in interest rates has also been cited as a reason for the rise in stocks, but this may lead to a decrease in the value of the dollar and higher inflation risks.
Overall, the risk remains in the stock market as the “real” value of assets has not yet reached its 2021 peak. It is essential for investors to consider inflation-adjusted data and the potential impact of interest rate cuts on the value of the dollar before making investment decisions. Vigilance and caution are necessary in these uncertain economic times.
