"Good morning to you all at Fullermoney, I like interesting charts in particular and two that currently stand out are the DJIA and S&P inflation adjusted charts. They both appear to be in downtrends with the next peak sometime off in the medium term future (6-12mths at a guess).Do you think that this trend will be resumed and if so do you feel that my time estimation is realistic. Also do you feel that the effects of the end of QE will ultimately cause the end of this current upward move and do you see any circumstances in which this downtrend would not continue?"

Eoin Treacy's view Thank you for these interesting questions. There are some quite clear differences between the inflation adjusted performances of the Dow Jones Industrials Average compared to the S&P500 so I prefer to treat them separately. In addition, total return indices adjusted for inflation offer a clearer representation of performance for income producing instruments. Fortunately, we have total return indices for both the Dow and the S&P. I have added the relevant inflation adjusted ratios to the Chart Library.

In nominal terms, 12,000 has proved to be an important psychological level for the Dow Jones Industrials Average. That level marked the 2000 peak. The Index hit a new high in October 2006, retested that level in 2007 and in 2009 paused near 12,000 during its decline. The Index pushed back above 12,000 in February and has been consolidating in that region since. On an inflation adjusted basis, prices retested the 1999 peak in 2007. The rally from the 2009 low has retraced more than half the bear market decline. On a total return inflation adjusted basis, the ratio has a striking resemblance to the nominal price series.

In nominal terms, the S&P500 hit a peak near 1560 in 2000 and retested it in 2007. It has retraced approximately 75% of the bear market decline. On an inflation adjusted basis, the S&P500 remains in an 11-year downtrend. The 2007 peak was substantially below the 2000 peak and the 2008 low was below the 2002 low. The total return inflation adjusted ratio's downtrend is much less pronounced and would more accurately be described as prolonged ranging with a mild downward bias.

Both of these sets of charts highlight the importance of including dividends in one's appraisal of potential investment returns. The Dow Jones, as a Blue-chip index is concentrated in a small number of relatively reliable dividend paying stocks. It has had an annualised return of 3.89% since March 2000 versus 1.21% for the S&P500. Compounded this translates to a return of 52.61% versus 14.17%.

Reinvested dividends have helped to offset inflationary pressures over the last decade. In an environment where inflation is more likely than not to erode investment returns, the attractions of competitive, reliable dividend paying shares, particularly those leveraged to global growth are not to be ignored.

With regard to quantitative easing, I suspect that we have entered an additional phase of monetary accommodation; this time focused on the Yen. (Also see Comment of the Day on March 15th). Therefore, while oil remains a considerable headwind for equity markets, I believe it would be ill advised to assume a too bearish an attitude towards those indices which have already completed reversions towards their means represented by the 200-day MA.