Inflation and Investing: False Alarm or Fair Warning?

As we approach the mid point of 2021, financial markets, for the most part, have had a good year so far. Looking at US equities, the S&P 500 is up about 11% and the NASDAQ about 5%, from start of the year levels, and the underperformance of the latter has led to a wave of stories about whether this is start of the long awaited comeback of value stocks, after a decade of lagging growth stocks. Along the way, it has been a bumpy ride, as the market wrestles with two competing forces, with an economy growing faster than expected, acting as a positive, and worries that this growth will bring with it higher inflation and interest rates, as a negative. As inflation makes its way back into market consciousness, there are debates raging from whether the higher inflation numbers that we are seeing are transitory or permanent, and if it is the latter, how they will play out in financial markets. 

Inflation: Measures and Drivers

For those who are under the age of forty and have grown up in the United States or Europe, inflation is an abstraction, a number that governments report on and experts talk about, but not something that is central to their investing or regular lives. For those who are older or grew up in countries with high inflation, inflation is far more than a number, wreaking havoc on savings and exposing fault lines in economies and societies.

What is inflation?

Put simply, inflation is a (Read more...)