Why Low Inflation Is Great For Markets And You

Published on: 04/19/2022

In this edition of Chart Talk, Tony Ogorek and Jeff Viksjo look back from 1928 to 2021 to see how the stock market performed based on the level of inflation that existed at that time.



Welcome to this edition of Chart Talk.  I’m Tony Ogorek.  I’m here with Portfolio Manager Jeff Viksjo.  And today, Jeff, we’re going to take a look at the stock market and inflation.  You know the stock market has historically been one of the best hedges against inflation.  But when we look at this table today, what we see is that that is a relative proposition. So, what do you see here Jeff?



So, Tony this chart breaks out stock performance by the level of inflation that existed during the time, and it goes back all the way to 1928.  You can see the sweet spot for stock market returns is when inflation is between 0-3% and that’s where we’ve been the last 13-years.  And that’s why we’ve had great returns since the Great Financial Crisis 13-years ago.  The average return was about 16.5%, and you kept most of it because inflation was very, very low.  So, the column to the right is after inflation at 14.7%. We’d take that every day.  Unfortunately, now inflation has started to creep higher and we’re getting into that 3-6% bracket.



And that’s where the bad news comes in.  I mean, that’s about 30% of the time, from 1928 to the present.  The average returns though, on an annual basis, are only about 5.5% and net of inflation only 1.4%.  So, it’s really, not very attractive.  The Federal Reserve sees this, they know that, and they know their job is to keep inflation in that 0-3% range.  Whatever they have to do to achieve that, I think, that’s what they are going to be looking at.

So, thank you Jeff. And thank you for joining us for this edition of Chart Talk.


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