Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

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

6 Critical Money Making Rules