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Why Inflation REALLY Matters to InvestorsBy
Thursday, February 15, 2018
Once in the last 20 years, inflation poked its head above 5%.
That happened in 2008 – the worst year in the stock market since the Great Depression. Stocks fell 37%.
But was it a coincidence that inflation soared at the same time the stock market crashed?
To find out, let's look a little further back in history...
Besides 2008, some of the worst years in the stock market were 1973 and 1974. What happened with inflation back then?
Just like in 2008, inflation rose above 5%. And those turned out to be the second- and fourth-worst years for stocks after the Great Depression.
Inflation poked its head above 5% two other times in the 1970s. And stocks tanked then, too. Take a look...
 The message from history is simple. The stock market hates rising inflation. It's a serious warning sign for stocks if the year-over-year inflation rate rises above 5%.
This brings us to today...
The stock market went down this week, the experts say, because of rising inflation expectations. The Consumer Price Index came out yesterday, stating that inflation rose over the last 12 months.
But the new inflation number was just 2.1%.
Excuse my technical language here... but "big whoop."
Really? 2.1%? That's cause for concern?
I don't think so. I think a better explanation is that traders and investors have become nervous over the last few weeks, looking for a reason to sell. Inflation was simply this week's excuse.
Rising inflation has historically been terrible for stocks. It's a clear danger sign when the year-over-year inflation rate rises above 5%.
But right now, we are nowhere near that number. And – while I could be wrong, of course – I don't expect we will see 5% anytime soon.
Any number of things could derail this great bull market in stocks. I don't expect that the rate of inflation will be THE thing that derails this particular boom...
Don't let this week's "inflation scare" spook you. Stay on board with the "Melt Up."
Good investing,
Steve
Further Reading:
"Don't get spooked out of the market," Steve says. Stocks recently had their worst week in more than a year. But believe it or not, this could be a good sign – for one reason... Read more here: 100% Chance of New Highs in the Next Six Months.
"We've seen these kinds of readings only 5% of the time since 1987," Brett Eversole writes. One indicator could help explain the recent pullback in stocks... And it won't kill this bull market. Learn more here: Most Investors Now Expect Higher Stock Prices.
Market NotesAVOID THIS TROUBLED BUSINESS Today's chart highlights the decline of America's malls...
Regular readers know the e-commerce revolution has posed a huge challenge for brick-and-mortar retailers. Last year's online sales are expected to total more than $459 billion... up 17-fold from $27 billion in 2000. In the past, we've highlighted weakness in retailers like JC Penney (JCP), Signet Jewelers (SIG), and L Brands (LB). Today, we'll look at the shares of a struggling mall operator...
Tanger Factory Outlet Centers (SKT) operates 44 outlet shopping centers across the U.S. and Canada. But this company has seen better days... Last year, it "recaptured" around 201,000 square feet from its mall tenants due to bankruptcies and restructurings. (That's up from 105,000 square feet the year before.) Not only that, but the company's pile of debt is increasing – it now owes nearly $1.8 billion.
As you can see below, shares struck a new multiyear low yesterday... And they are now down more than 37% from last year's highs. With more folks shopping online each year, it's likely brick-and-mortar shopping centers will continue to struggle...
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