Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Investing in the METAVERSE Stocks Universe - 8th Dec 21
Stock Market Sentiment Speaks: I Expect 15-20% Returns For 2022 - 8th Dec 21
US Dollar Still Has the Green Light - 8th Dec 21
Stock Market Topping Process Roadmap - 8th Dec 21
The Lithium Breakthrough That Could Transform The Mining Industry - 8th Dec 21
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Fears of Inflation are Overblown Right Now

Stock-Markets / Stock Markets 2018 Mar 03, 2018 - 06:59 PM GMT

By: Troy_Bombardia

Stock-Markets

Bears attribute the stock market’s recent correction to fears of rising inflation. This isn’t true. The rally before this correction was the longest rally in history without a 6%+ “small correction”. Hence, a correction was overdue. Rising inflation was merely an excuse for the market’s selloff.


I demonstrated in a previous post that inflation will not stop the equities bull market until it hits at least 4%. U.S. inflation is hovering slightly above 2% right now. Inflation still has a lot of room to run before it impedes stocks.

Some bearish investors expect inflation to surge and hurt stocks immediately. I disagree. I think inflation will slowly grind higher in 2018, increase faster in 2019, and possibly surge in 2020. There are no signs that inflation will surge in 2018 yet.

Commodities

The year-over-year change in commodities leads inflation, which is the year-over-year change in CPI. This is because it takes time for companies to adjust their prices AFTER raw material prices have changed.

Commodity prices have barely gone up from 2017-present. Commodities like gold, silver, agriculture, etc are forming a broad base. Aside from oil, commodities aren’t breaking out yet. Hence, inflationary pressure from commodities is still weak. I expect this to be a major contributor to rising inflation in 2019 and 2020 as commodity prices enter into a major bull market.

Here’s the CRB Commodities Index. Notice how it is forming a U-shaped long term bottom.

History shows that the first leg of commodity bull markets are slow. They do not induce soaring inflation until commodity prices start to go parabolic.

Federal debt

Bears are concerned that Trump’s tax cut and a rising federal debt will cause inflation to soar. History suggests otherwise.

There is no positive correlation between rising U.S. debt and rising interest rates. This chart demonstrates that the Federal debt as a % of GDP has been going up…

… while interest rates have been going down.

 

Inflation tends to rise slowly at first and then pick up steam in later years. The U.S. economy recently cleared the deflationary risks of 2015-2016. No economy jumps straight from deflation to high inflation in such a short period of time.

Inflation surged in the 1970s due to political reasons (OPEC oil embargos). Those conditions do not exist today, thanks to U.S. shale and the destruction of OPEC’s oil price power.

Monetary tightening

Remember how bears were screaming about the inflationary risks of QE less than a decade ago? Well central banks around the world are now tightening monetary policy for the first time in a decade.

Monetary tightening will slow down the rise of inflation.

Secular de

By Troy Bombardia

BullMarkets.co

I’m Troy Bombardia, the author behind BullMarkets.co. I used to run a hedge fund, but closed it due to a major health scare. I am now enjoying life and simply investing/trading my own account. I focus on long term performance and ignore short term performance.

Copyright 2018 © Troy Bombardia - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in