With stock prices rising, many commentators bandy Wall Street’s performance as an indicator of economic recovery. But these heralded returns may not live up to the hype. Unlike other economic indicators, stock market returns are not adjusted for inflation, as E.S. Browning writes in The Wall Street Journal.
Controlling for inflation takes extra work and makes stock gains look punier, so it is easy to see why stock analysts almost never do it. The media almost never do it either. But other things do get measured in real dollars. When economists report whether the economy is growing, they account for inflation. When analysts judge long-term gains in commodities such as gold or oil, they often adjust for inflation.
Because analysts almost never do the same with stocks, it leaves investors with an exaggerated view of their portfolios’ performance over time.
Bevan Sabo
Ariel Goldring
Guest Blogger
Interesting take indeed! I would agree that the market participants tend to overlook any figure than shows the true return post inflation.
A 15% gain looks nicer than a 2% gain post adjustment