Political  Calculations

What exactly was happening one year ago and just six months ago in the stock market?

We're asking that question today is because of the two charts we featured yesterday that we're showing side-by-side below, which look very similar to one another except for the very recent trajectory of stock prices:

Change in Growth Rates of Expected Future Trailing Year Dividends per Share with Daily and 20-Day Moving Average of S&P 500 Stock Prices, through 15 November 2013
Change in Growth Rates of Expected Future Trailing Year Dividends per Share with Daily and 20-Day Moving Average of S&P 500 Stock Prices (Six-Month Base), through 15 November 2013

In the chart on the left, we're showing the change in the year-over-year growth rate of S&P stock prices with respect to the change in the year-over-year growth rate of expected future dividends per share. In the chart on the right, almost everything is the same as on the left, except for the change in stock prices, where we're instead showing the change in the annualized growth rate of stock prices over the preceding six months.

So why is there such a difference between the apparent trajectory of the change in the year-over-year growth rate of stock prices?

The answer has to do with the base reference point from which those growth rates are calculated. In the chart on the left, that base reference point was one year ago, which in the chart, coincides with the decline in stock prices that occurred as the stock market initially reacted to Barack Obama's re-election, just before the tax avoidance-inspired stock market rally that defined the Great Dividend Raid of 2012.


Political Calculations

Political Calculations is a site that develops, applies and presents both established and cutting edge theory to the topics of investing, business and economics.

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