What Are Stocks Saying About Inflation?

Share Price chart
Adam Gault | OJO Images | Getty Images
Share Price chart

Is the climbing stock market a signal that inflation is still very low?

To many market watchers, rising commodity prices is a signal of rising inflation. But the stock market is telling a different story.

Rising inflation is typically associated with stock underperforming.

No one really knows why this happens—and economic theorists insist it shouldn't happen at all. By there's no denying the numbers: every 100 basis points of inflation correlates with a 242 basis point decline in stock market returns.

But stocks are performing very well right now. If the traditional link between inflation and stock market returns still holds, this should be a signal that inflation isn't really on the rise.

It is possible, however, that this time it is different. Maybe the markets are finally behaving the way economists have always claimed they should, with stock prices rising with other prices.


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