Why Inflation is bad for stocks
šø ššš šš£šš”šš©šš¤š£ š§šš©š ššØ ššŖš§š§šš£š©š”š® šš© š°.š®% and the Fed is telling us that this is just transitory inflation because the economy is overheating. But investors are not convinced and stocks $SPX500 , especially tech stocks $NSDQ100 are not doing great. Last year we had monetary inflation and investors were happy but not this year, why is this the case?
With zero interest rates and Quantitative Easing, cash is cheaper and riskier assets such as stocks and bonds are more attractive. But bond rates are so low today, that even they are not attractive anymore. That's why stocks were the real winners from the 2020 monetary and asset price inflation. šØš©š¤šš šØ š¬šš§š š©šš š§ššš” š¬šš£š£šš§šØ šš§š¤š¢ š©šš š®š¬š®š¬ š¢š¤š£šš©šš§š® šš£š ššØšØšš© š„š§ššš šš£šš”šš©šš¤š£.
This year we're seeing Consumer price index (CPI) inflation and this affects everybody, not just people who own financial assets. Normally higher and increasing CPI inflation is not good for stocks. Why?
š¦ It is because šš£š«ššØš©š¤š§šØ ššš„ššš© š©šš ššššš§šš” šššØšš§š«š š©š¤ ššš©. According to their dual mandate, they have to keep inflation and unemployment rates low. By inflation here, we mean CPI inflation. If inflation rises, the Fed will be forced to raise interest rates and higher interest rates are not so good for businesses and for stocks.
Normally higher interest rates are good for bank stocks $JPM , for value stocks and for commodities $GLD $GOLD .
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