{"id":35955,"date":"2023-07-15T04:02:09","date_gmt":"2023-07-15T08:02:09","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/inflation-rarely-falls-this-fast-thats-good-news-for-the-stock-market\/"},"modified":"2023-07-15T04:02:10","modified_gmt":"2023-07-15T08:02:10","slug":"inflation-rarely-falls-this-fast-thats-good-news-for-the-stock-market","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=35955","title":{"rendered":"Inflation Rarely Falls This Fast. That\u2019s Good News for the Stock Market."},"content":{"rendered":"<div id=\"js-article__body\" itemprop=\"articleBody\" data-sbid=\"SB52671930801265634843404590086093307493262\">\n<p>Welcome to Disinflation Nation. <\/p>\n<p>After more than two years of rising prices, the rate of inflation is falling\u2014and fast. The consumer price index rose just 3% in June from the prior year, its smallest increase since March 2021. It\u2019s down 6.1 percentage points in the past 12 months, marking the largest such decline since 2009, when inflation had turned to deflation. The last time the rate of CPI fell from above 9% by 6.1 percentage points or more was in May 1952, when the index dropped 7.4 points to 1.9%. <\/p>\n<div class=\"paywall\">\n<p>Let\u2019s consider how big an accomplishment this is. Yes, the overall inflation numbers remain too high. Core CPI, which removes food and energy from the equation, sits at 4.8%, well above the Fed\u2019s target of 2%, and average hourly earnings continue to grow at a 4.4% clip. <\/p>\n<p>But there\u2019s a truism investors should fall back on: It\u2019s the direction, not the level. And since the direction of inflation is down, the direction of the stock market is up. It really is that simple, and it\u2019s a big part of why the stock market has raced higher in 2023. <\/p>\n<p>And it very well could keep rising. Bespoke Investment Group\u2019s Paul Hickey notes that the difference between the finished-goods component of the producer price index, which goes back to the late 1940s and fell by 3.1%, and the CPI hit 6.1 percentage points in June, the widest ever. That can signify that margins are holding up or that consumer inflation will be less of a problem. <\/p>\n<p>Either way, a record gap between the two has typically been a good time to buy stocks, with the<br \/>\n        S&amp;P 500<br \/>\n       averaging a 3.6% gain over the three months following such an occurrence and a 19% rise over the next year. \u201cPrior periods where the spread hit a record were typically followed by above-average equity returns and occurred very late in a recession or in the early stages of an expansion,\u201d Hickey writes.<\/p>\n<p>Right now, it would appear to be neither. Despite an inverted yield curve, sliding leading indicators, and manufacturing surveys that remain in contraction territory, the U.S. economy has yet to sink into recession. John Higgins, chief markets economist at Capital Economics, still expects a slowdown during the second half of the year, which leaves him digging into history for examples of recessions that were accompanied by bull markets. <\/p>\n<p>He found five: the one that occurred at the end of the Civil War; the slowdowns near the ends of World Wars I and II; the recession lasting from October 1926 through November 1927; and the downturn that coincided with the end of the Korean War. Each of the recessionary rallies came at a time when valuations were either very cheap or in bubble territory, and since neither is the case right now, he expects the stock market to drop soon. <\/p>\n<p>\u201cOur forecast is that it will take a knock amid a recession in H2 2023 before powering ahead,\u201d he writes. <\/p>\n<p>There is another option\u2014that the U.S. already experienced its recession and is in a new expansion. That\u2019s the one Hickey favors, based on his comparison of PPI to CPI: \u201cUsing this metric would give additional credibility to the viewpoint that rather than a recession being on the horizon, it would more likely be in the rearview mirror.\u201d<\/p>\n<p>Wouldn\u2019t that be a nice surprise? <\/p>\n<p><strong>Write to <\/strong>Ben Levisohn at Ben.Levisohn@barrons.com<\/p>\n<\/p><\/div>\n<\/div>\n<p>Read the full article <a href=\"https:\/\/www.marketwatch.com\/articles\/inflation-rarely-falls-this-fast-thats-good-news-for-the-stock-market-6c73938b?mod=markets\" target=\"_blank\" rel=\"noopener\">here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Welcome to Disinflation Nation. After more than two years of rising prices, the rate of inflation is falling\u2014and fast. The consumer price index rose just 3% in June from the prior year, its smallest increase since March 2021. It\u2019s down 6.1 percentage points in the past 12 months, marking the largest such decline since 2009, [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":35956,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-35955","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v20.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Inflation Rarely Falls This Fast. That\u2019s Good News for the Stock Market. | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Welcome to Disinflation Nation. After more than two years of rising prices, the rate of inflation is falling\u2014and fast. 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