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Dow Jones Chart (DJIA)
Dow Jones Industrial Return Rate / Prime Rate
Dow Jones Industrial Return Rate vs. Prime Rate: Analysis
 
DJIA Return Rate
Simultaneous Change
DJIA Return Rate
Subsequent Change
1% Rise in Prime Rate over 1 Year
-4.83%
+1.07%
1% Decline in Prime Rate over 1 Year
+4.90%
-0.90%
What does the table mean?
It indicates that a 1% Prime Rate increase over a 12 month period, (from 5% to 6% for
example) has typically been accompanied by a 4.83% Dow Jones Industrial Return
Rate decline during that year and a 1.07% Dow Jones Industrial Return Rate increase
the following year.

It also indicates that a 1% Prime Rate decline over a 12 month period, (from 5% to 4%
for example) has typically been accompanied by a 4.90% Dow Jones Industrial Return
Rate increase during that year and a 0.90% Dow Jones Industrial Return Rate decline
the following year.

The center column shows the change in the Dow Jones Industrial Return Rate over
12 months, depending on whether the period experienced a rising or falling Prime
Rate. The right column shows the change in the Dow Jones Industrial Return Rate
during the year following an increase or decrease in the Prime Rate.

The data history in the middle column shows a strong tendency for the two
rates to move inversely to each other during the same time period.

The evidence for using the previous 12 month change in the Prime Rate to
predict the future direction of the Dow Jones Industrial Return Rate is
strong (right column).

Annual rates are shown in the graph and calculations.



How Do I Use This Information?
There are many investment theories that are well publicized in the financial press.
Even though little or no historical data may be offered as evidence for such theories,
many investors use them subconsciously, if not intentionally.

Example Theories: Rising Inflation is bad for the stock market. A booming housing
market is good for the S&P 500 stock index. A falling fed funds rate means that long
term interest rates will fall.

There are many such theories. In this site,  long term investment and economic data
is tested against decades to determine whether a relationship actually exists or not.
This historical correlation provides a vital aid in interpreting the often confusing
behavior of the financial markets. The perspective gained may be the difference
between staying the course or being blown and tossed by every investment theory
that is popular at the moment. What the majority assumes to be true, often is not. In
the final analysis, readers are admonished to follow the evidence, wherever it leads.

This page tests the relationship between the Prime Rate and the Dow Jones Industrial
Return Rate. Suppose you are making a business or investment decision. Suppose
again that the decision hinges on whether the Prime Rate and the Dow Jones
Industrial Return Rate tend to move in the same or opposite directions. The data,
Dow Jones Chart, and analysis above will enlighten you. You'll discover whether they
move with, inversely to, or independently of each other.

Suppose that the Prime Rate has risen sharply and that you need to know what
direction the Dow Jones Industrial Return Rate is headed in the near future. Does the
recent increase in the Prime Rate provide a clue about the future direction of the Dow
Jones Industrial Return Rate? The data history, Dow Jones Chart, and analysis above
will show you how the Dow Jones Industrial Return Rate has performed after
increases in the Prime Rate. You'll see if one indicator has been likely to signal a
change in another. This is not intended as a prediction, but merely as a clue to the
future from the annals of history. No man knows the future, unless he has the ability
to control the future.

This site compares data series for interest rates, stock indexes, economic indicators,
currency exchange rates and real estate values. Suppose that you want to see how
stock indexes are influenced by interest rates or the value of the dollar. Click one of
the stock index links on the right side of any page. Links to our multi-series graphs
and correlation analysis may be found at the bottom-center of the stock index pages.


Formula for periods with a rising Prime Rate:
1) Change in the Dow Jones Industrial Return Rate DURING periods with a rising
Prime Rate:
The abbreviated formula is: (Dow Jones Industrial Return Rate Change / Prime Rate
Rise) x 1% = Published Rate.

The complete formula is: [(Average change in the Dow Jones Industrial Return Rate
over all rolling 12 month periods with a rising Prime Rate) / (Average Rise in the Prime
Rate over the same 12 month periods)] x 1% = Published Rate.

2) Change in the Dow Jones Industrial Return Rate AFTER a rising Prime Rate:
The abbreviated formula is: (Subsequent Dow Jones Industrial Return Rate Change /
Prime Rate Rise) x 1% = Published Rate.

The complete formula is: [(Average change in the Dow Jones Industrial Return Rate
during the 12 months following any rolling 12 month base period with a rising Prime
Rate) / (Average Rise in the Prime Rate over the 12 month base periods)] x 1% =
Published Rate.


Formula for periods with a declining Prime Rate:
1) Change in the Dow Jones Industrial Return Rate DURING periods with a declining
Prime Rate:
The abbreviated formula is: (Dow Jones Industrial Return Rate Change / Prime Rate
Decline) x -1% = Published Rate.

The complete formula is: [(Average change in the Dow Jones Industrial Return Rate
over all rolling 12 month periods with a declining Prime Rate) / (Average decline in the
Prime Rate over the same 12 month periods)] x -1% = Published Rate.

2) Change in the Dow Jones Industrial Return Rate AFTER a decreasing Prime Rate:
The abbreviated formula is: (Subsequent Dow Jones Industrial Return Rate Change /
Prime Rate Decrease) x -1% = Published Rate.

The complete formula is: [(Average change in the Dow Jones Industrial Return Rate
during the 12 months following any rolling 12 month base period with a declining
Prime Rate) / (Average decline in the Prime Rate over the 12 month base periods)] x
-1% = Published Rate.


Rolling 12 Month Periods Defined:
Overlapping 12 month periods in a monthly data base.

For example:
In the 24 month period included in 2000 - 2001, there are 13 complete rolling 12
month periods. The first is January, 2000 - December, 2000. The second is February,
2000 - January, 2001. The third is March, 2000 - February, 2001 and so on. The last
complete rolling 12 month period in the 2000 - 2001 period is January, 2001 -
December, 2001.
1/50          1/1960            1/1970            1/1980           1/1990             1/2000            1/2010            1/20
The 12 month Dow Jones Industrial Return Rate, is shown in gray. The rate is based on the DJIA
monthly close, excluding dividends. DJIA refers to the Dow Jones Industrial Average. The Prime Rate is
shown in green (average daily rate per month). Other graphs showing two data series are available.
See links at the bottom-center of each page.
-40%
40%
30%
20%
10%
0%
-10%
-20%
-30%
14000
10000
8000
6000
4000
2000
0
12000
The Dow Jones Industrial Average, is shown above in gray and is measured using the left axis.
The US Prime Rate is shown in black and is measured using the right axis.
Dow Jones Industrial Average
Prime Rate
14%
10%
8%
6%
4%
2%
0%
12%
Multi-Index Chart
1/2000        1/2002               1/2004               1/2006               1/2008               1/2010           1/2012
TwinCharts.com
More Multi-Index Charts
To see the Dow Jones Industrial Average on a chart with many other indexes like the
Gross National Product, Oil Prices or Unemployment Rates, click
Dow Jones Indicators.
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