High And Falling Inflation Is Good For Stocks

The year 2023 is not an exception.  Historical data shows stocks often thrive when inflation is high but declining.  Here are three reasons to support this:

First, early in inflation spikes, income lags price hikes. But later, as inflation moderates from highs, income growth outpaces it. This surplus spending power further aids the economy and markets.

Second, stocks have already endured significant corrections in anticipation of a recession. With gloomy forecasts fading as recession delays, investors adopt a more optimistic posture, prompting new purchases.

Finally, corporate earnings benefit from decreases in inflation. As prices stabilize, real earnings growth accelerates, boosting stock prices.