The days of record breaking stock market gains are long gone. Inflation is the only thing rising economy wise at this point. The stock market and inflation have been closely linked in recent years, with the stock market often reacting to changes in inflation. In 2023, the stock market has seen a wobbly rally, with the Dow Jones Industrial Average dropping 3% last week and the S&P 500 and Nasdaq Composite both sliding 2.7% [1].
This has been due to investors coming to grips with a further rise in interest rates [2]. We have to begin a slow break off from the Federal Reserve, we can’t leave them in control of our interest rates.
At the same time, the Federal Reserve claims that it has been acting on inflation, with the preferred inflation gauge showing a stronger-than-expected increase in prices [3]. This has led to a one-way market that has foiled stock pickers [4]. However, some analysts are predicting that deflation could surprise Wall Street in 2023 [5], which could lead to a shift in the stock market.
Overall, the stock market and inflation are closely linked and changes in one can lead to changes in the other.
Sources:
- https://www.marketwatch.com/story/the-2023-stock-market-rally-looks-wobbly-whats-next-as-investors-come-to-grips-with-a-further-rise-in-interest-rates-bdb3e1a3
- https://www.bloomberg.com/news/articles/2023-02-25/a-one-way-market-foils-stock-pickers-as-fed-trounces-everything
- https://www.businessinsider.com/stock-market-economy-fed-inflation-recession-policymakers-jerome-powell-rates-2023-2
- https://www.cnbc.com/2023/02/27/cramers-top-10-things-to-watch-monday-stocks-earnings-inflation.html
- https://markets.businessinsider.com/news/stocks/stock-market-outlook-deflation-surprise-wall-street-investors-inflation-cpi-2023-1