Inflation rates are still at 40-year highs, and the Fed is serious about raising rates to combat them. Neither is particularly good for business. However, like many things in life, the impact of inflation on the markets is not so simple. Investors may have a hearty sell-off reaction every time new, alarming data is released. However, historically, high inflation alone is not directly responsible for market downturns.
Inflation and US markets have a complicated relationship. Investors hate surprises. They can operate under conditions of elevated inflation. However, they do not like a sudden, sharp increase in these indicators.
A recent analysis of market performance by the Leuthold Group found that when inflation is high, stocks perform very well after the rate peaks. When the inflation rate is 8% or higher, the slowdown in inflation is usually accompanied by an increase in inventories throughout the year. Stocks can also provide a pretty decent hedge against inflation over the long term.
Some experts believe that stocks are one of the best places to be in a world of rising inflation. Some believe that investors can prepare their portfolios to better withstand higher rates. Value stocks, with more stable cash flows, tend to outperform growth stocks in a bullish environment. Energy earnings in the S&P 500 may rise nearly 205% this quarter. Some see the rest of the S&P 500 down 2%. However, the best hedge against the process is patience.
U.S. gasoline futures fell more than 11% this week as crude oil prices tumbled. The drop in prices reflects growing concerns about a US recession that could dampen oil demand. The national average value for a gallon of gas was $4.75 on Thursday. That’s about 27 cents below the record high set in June. It’s worth noting that gas can reach $4 to $4.25 per gallon in August.
Gas stations have little incentive to lower prices. The demand for gas is maintained this summer. Oil prices may also rise based on new developments in Russian oil exports. This has to do with the war in Ukraine or the hurricanes that will hit US oil infrastructure along the Gulf Coast.
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