Will Dow Stock Recover To Its Pre-Inflation Shock Highs?

DOW: Dow logo

Dow stock (NYSE: DOW) currently trades at $55 per share, about 15% lower than the level seen in March 2021, and it looks fully valued. DOW stock was trading at around $52 in early June 2022, just before the Fed started increasing rates, and is now 7% above that level, compared to 19% gains for the S&P 500 during this period. This underperformance of DOW stock can be attributed to a decline in sales in recent quarters due to lower demand and prices, given a challenging macro environment with higher inflation and rising interest rates. Although there has been a steady decline in the inflation rate in response to the Fed’s aggressive rate hike plan, investors still have concerns about a potential recession.

We note that DOW stock has had a Sharpe Ratio of 0.2 since early 2017, lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.

Returning to the pre-inflation shock level of about $71 means that DOW stock will have to gain more than 25% from here, and we don’t think this will materialize anytime soon. DOW stock trades at 0.8x revenues, aligning with its last four-year average. Our Dow (DOW) Valuation Ratios Comparison dashboard has more details.

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Our detailed analysis of Dow upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock

Timeline of Inflation Shock So Far:

  • 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
  • Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
  • April 2021: Inflation rates cross 4% and increase rapidly.
  • Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
  • June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
  • July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
  • Since October 2022: Fed continues rate hike process; improving market sentiments help S&P500 recoup some of its losses.

In contrast, here’s how the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

S&P 500 Performance During 2007-08 Crisis

The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

Dow Restructuring

Dow has gone through significant restructuring in the last ten years. In 2015, Dow and DuPont agreed to a corporate reorganization involving the merger and split of Dow and DuPont into three different companies. Dow and DuPont merged to form DowDuPont in 2017. The materials science division was spun off from DowDuPont and took the name of the Dow Chemical Company in 2019.

Dow Fundamentals Over Recent Years

Dow’s revenue rose from $43 billion in 2019 to $57 billion in 2022, driven by increased pricing, especially in 2021, when the pricing growth was a solid 40%. However, the sales have declined to $49 billion in the last twelve months due to lower demand and soft pricing.

The company’s operating margin improved from -1% in 2019 to 12% in 2022 before declining to 6% for the last twelve-month period. Our Dow Operating Income Comparison dashboard has more details. Its earnings per share stood at $6.32 in 2022, compared to the $(1.84) figure in 2019.

Does Dow Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Dow’s total debt decreased from $19 billion in 2019 to $17 billion in 2022, while its cash increased from around $2 billion to $4 billion over the same period. The company also garnered $7.5 billion in cash flows from operations in 2023. The company appears to have enough cash cushion to meet its near-term obligations.


With the Fed’s efforts to tame runaway inflation rates helping market sentiments, we believe Dow stock has the potential for gains once fears of a potential recession are allayed. That said, the declining sales and earnings and pressure on operating margins remain a risk factor to realizing these gains.

Returns Sep 2023
MTD [1]
YTD [1]
Total [2]
 DOW Return 1% 10% 1%
 S&P 500 Return 0% 18% 102%
 Trefis Reinforced Value Portfolio 1% 32% 580%

[1] Month-to-date and year-to-date as of 9/4/2023
[2] Cumulative total returns since the end of 2016

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