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What Investors Can Learn From the History of Inflation

Beth McCann

22nd JUN. 2021

The WSJ uses ASR charts to illustrate how inflation can dominate stock market returns: should investors anticipate a reprise of the 1950’s or the 1970’s? 

If today’s post Covid-19 pandemic inflation proves sticky, will it be like the years before Volcker, or could it be more like the happier growth that followed World War II? 

“One reason why stocks did well in the 1950s was that money flowed into the market as pension funds and other institutions bought equities for the first time, according to Ian Harnett, chief investment strategist at Absolute Strategy Research. That helped push down the so-called equity-risk premium, which measures the extra returns stock investors demand over government bonds for the risk of losing their money”

Where are we today? We have a low equity risk premium, leaving stocks without much of a cushion against uncertainty. Avoiding technology companies, or at least those that rely on low interest rates to make their promised future earnings look more valuable today, might be the key.  (ASR remain underweight Tech.) 

To read the full article, see HERE (WSJ subscription may be required) 

Clients can read Ian Harnett on “Back to the 1950’s as Biden boosts Value”  HERE 

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