Sorry, But Dow 40,000 Isn’t Worth Celebrating

The headline in the Wall Street Journal typifies the reaction to the Dow Jones Industrial Average closing above 40,000 for the first time in its history — “Dow at 40000 Is Welcome News for President Biden.”

The Journal calls it “the latest sign the economy has shrugged off the threat of recession,” and says it’s “welcome news for President Biden, whose approval — and re-election prospects — are being held down by public dissatisfaction with the economy …. The Dow is up nearly 30% since Biden was inaugurated in January 2021. That is slightly higher than where the Dow was at the same point in Donald Trump’s presidency.”

The Biden campaign couldn’t have said it better! In fact, the first thing his campaign did was parrot that opening, with a post on X mocking Donald Trump in a split screen showing Trump predicting a market crash should Biden get elected and the clips of broadcasters popping Champagne corks as the Dow crossed 40,000.

Hitting 40,000 is, to be sure, an important milestone — even if it’s just psychological. It means the Dow has officially doubled in value in just over seven years (from 20,000 in early 2017 to 40,000 last week). That’s less than half the time it took to double from 10,000, which it hit in April 1999.

It is also not surprising that the Biden-cheerleading press would be ecstatic, declaring things like:

• “The Dow 30 broke 40,000 for the first time in history!”
• “Look at that market!”
• “I never expected the Dow to hit 40,000!”
• “What was once an incomprehensible level is now at our doorstep!”

There’s just one inconvenient fact that these celebrations ignore.

Inflation.

When the Journal says that gains under Biden have been stronger than they were over the same period in Trump’s first term, it’s not accounting for the huge spike in inflation that Biden unleashed.

When you factor that in, most of the gains in the Dow under Biden simply disappear – as does the Wall Street Journal’s claim that the market has done better under Biden than Trump.

In nominal terms, the Dow has climbed almost 30% since Biden took office in January 2021, compared with 28% over the same period under Trump.

But when you account for inflation, the Dow is up less than 12% since Biden took office. Under Trump, the inflation-adjusted gain from January 2017 to May 2020 was 24%.

In other words, in real terms, the market has been growing at half the rate under Biden as it was under Trump. From an investor’s point of view, that’s what matters.

It’s actually worse than this for Biden, because all the gains on his watch happened in the first four months of his presidency, when it climbed 12% in real terms. The market had rebounded from the COVID panic and had returned to its Trump-era boom — right up until Biden’s inflation-pumping and growth-crushing policies went into effect.

Since May 2021, the Dow has been flat. As a matter of fact, on an inflation-adjusted basis, the Dow is down from three years ago. It was 40,226 in May 2021, but closed at 40,003 last Friday. (See the chart above.)

So, please, let’s save the cheering for something that is actually worth cheering about.

— Written by the I&I Editorial Board