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Americans expect inflation to stay painfully high. That’s good news for stocks.

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libertybele:
Americans expect inflation to stay painfully high. That’s good news for stocks.

Headline inflation may have come down over the past year, but consumers’ expectations about future inflation have not. In fact, five-year expected inflation has been inching up rather than down in recent months, according to the University of Michigan consumer survey.

The median expectation is that inflation will run at a 3.1% annualized pace over the next five years; you have to go back to 2008 to find a higher reading. The mean expectation, which skews higher, is the highest it’s been since the mid-1990s.

Such expectations are a source of worry to many, on the theory that they are self-fulfilling: If consumers expect high inflation, the argument goes, they will behave in ways that accelerate the pace of inflation. If the U.S. Federal Reserve at its mid-June meeting decides to hike interest rates rather than hit the “pause” button, one of the big culprits may be consumers’ stubbornly-high inflation expectations.

The historical support for this theory is surprisingly weak, however. More often than not over the past several decades, consumers’ inflation expectations were a contrarian indicator, with subsequent five-year inflation below average when expectations were above average, and vice versa............

https://www.marketwatch.com/story/americans-expect-inflation-to-stay-painfully-high-thats-good-news-for-stocks-85022c59?mod=home-page

DefiantMassRINO:
High inflation does not necessarily correlate with higher stock prices.

Stocks have greater competition from higher yield Government bonds.  The ability to get a 5% annual yield with "no" risk, means stocks will be discounted accordingly.

Also, if the Fed's terrible Interest Rate increases continue, investors may be forced to sell assets to raise cash.  This puts downward, deflationary pressure on asset prices as there are more sellers than buyers.

Those who borrowed short-term money will be forced to retire the debt (deflationary); to sell assets (deflationary) for cash to borrow less or to pay for higher borrowing costs; or default (deflationary) on debt.

If the Fed continues to raise rates too quickly, there will be a deflationary death spiral ala 2008/2009.

If Government policies don't change, those policies will continue to constrain production, and keep  housing and energy costs higher than they would be if increased production was permitted.

Weird Tolkienish Figure:
Yes, so happy that inflation is so high, and I cannot afford groceries or anything right now.

libertybele:

--- Quote from: Weird Tolkienish Figure on June 02, 2023, 04:43:27 pm ---Yes, so happy that inflation is so high, and I cannot afford groceries or anything right now.

--- End quote ---

It's not easy to stay afloat these days.  We are ok, but if our homeowner's insurance goes up the projected 40-50% as been rumored or if we get cancelled and have to pay higher premiums it's going to be a struggle.

libertybele:

--- Quote from: DefiantMassRINO on June 02, 2023, 04:41:20 pm ---High inflation does not necessarily correlate with higher stock prices.

Stocks have greater competition from higher yield Government bonds.  The ability to get a 5% annual yield with "no" risk, means stocks will be discounted accordingly.

Also, if the Fed's terrible Interest Rate increases continue, investors may be forced to sell assets to raise cash.  This puts downward, deflationary pressure on asset prices as there are more sellers than buyers.

Those who borrowed short-term money will be forced to retire the debt (deflationary); to sell assets (deflationary) for cash to borrow less or to pay for higher borrowing costs; or default (deflationary) on debt.

If the Fed continues to raise rates too quickly, there will be a deflationary death spiral ala 2008/2009.

If Government policies don't change, those policies will continue to constrain production, and keep  housing and energy costs higher than they would be if increased production was permitted.

--- End quote ---

Stocks will pay out higher dividends to attract and maintain their investors.

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