Why Inflation is bad for stocks
๐ธ ๐๐๐ ๐๐ฃ๐๐ก๐๐ฉ๐๐ค๐ฃ ๐ง๐๐ฉ๐ ๐๐จ ๐๐ช๐ง๐ง๐๐ฃ๐ฉ๐ก๐ฎ ๐๐ฉ ๐ฐ.๐ฎ% 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. ๐จ๐ฉ๐ค๐๐ ๐จ ๐ฌ๐๐ง๐ ๐ฉ๐๐ ๐ง๐๐๐ก ๐ฌ๐๐ฃ๐ฃ๐๐ง๐จ ๐๐ง๐ค๐ข ๐ฉ๐๐ ๐ฎ๐ฌ๐ฎ๐ฌ ๐ข๐ค๐ฃ๐๐ฉ๐๐ง๐ฎ ๐๐ฃ๐ ๐๐จ๐จ๐๐ฉ ๐ฅ๐ง๐๐๐ ๐๐ฃ๐๐ก๐๐ฉ๐๐ค๐ฃ.
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?
๐ฆ It is because ๐๐ฃ๐ซ๐๐จ๐ฉ๐ค๐ง๐จ ๐๐ญ๐ฅ๐๐๐ฉ ๐ฉ๐๐ ๐๐๐๐๐ง๐๐ก ๐๐๐จ๐๐ง๐ซ๐ ๐ฉ๐ค ๐๐๐ฉ. 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 .
Watch the full video on YouTube:
https://www.youtube.com/watch?v=ldcrmEwP_Q8&list=UUPO3uUyoXSaFWG-Ldq1mqEQ&index=2
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