Will Higher Inflation Sink Stock Prices? - Adviser Investments

Will Higher Inflation Sink Stock Prices?

October 26, 2021

According to a recent CNBC survey, inflation is tied with COVID-19 as Americans’ biggest concern. And investors want to know: Will higher inflation and higher borrowing costs negatively affect stock prices? Here’s what Research Analyst Liz Laprade said in our recent webinar, Booster Shots, Market Shocks and the End of Fed Intervention:

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Liz Laprade

Will higher inflation sink stock prices? We can see by now that inflation isn’t as “transitory” as the Federal Reserve had formerly suggested. A lot of that is coming from supply chain backlogs pushing up prices of things like shipping and groceries. We’re starting to see it seep a little bit into services as well. It’s possible that if there is higher inflation running longer and hotter, the Fed may raise interest rates sooner than many had originally anticipated. That can actually be a good environment for stocks and for investors who want to earn a return higher than inflation and the rate of return on risk-free bonds.

That’s hard to achieve with bonds alone, so you could see investors shift away from bonds into equities, pushing up stock prices. In other words, I don’t equate high inflation and high interest rates with a poor stock market return.

Click here for a replay of Booster Shots, Market Shocks and the End of Fed Intervention. Please contact us at (800) 492-6868 to learn more about comprehensive wealth management solutions.


*Webinar recorded after the market closed on Wednesday, October 20, 2021.

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