News Column

Is S&P 500 at an Inflation-adjusted High?

April 12, 2013
S&P 500

Is S&P 500 at an inflation-adjusted high? A: Any time the stock market hits new highs, there are always people who question the move. This current market rally is no exception.

Even as the Standard & Poor's 500 marched to new highs, there were plenty of doubters who questioned the accomplishment. One of the largest criticisms has to do with inflation. Did the market really hit a new high, once you factor in the falling value of money over time?

Truth be told, if the indexes are adjusted for inflation, the market is not at a new high. Using inflation data from the Bureau of Labor Statistics can give investors a bit of an idea of what the real market levels are.

While not perfectly accurate, a basic guide would be that the market's high of 1565 in 2007 would be roughly 1752 currently. That means the market is still 9% below the S&P 500's high, if adjusted for inflation.

But investors shouldn't let the machinations of inflation confuse them. While the market may be below its inflation-adjusted high, that doesn't include dividends. With dividends included, the market is up dramatically from its 2007 levels. Also, the fact the market's rally hasn't kept up with inflation may be a sign there is additional upside.

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Source: Copyright USA TODAY 2013

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