22 Feb COTW: Inflation and the S&P 500
- January’s inflation print showed inflation increasing 0.5% month-over-month, to 6.4%. A monthly reading of 0.5% or higher is rare, as there have only been five occasions that inflation has increased by 0.5% or more month-over-month between the Global Financial Crisis in 2008 and 2020. While ongoing elevated levels of inflation are having a material impact on consumers and the prices for goods and services, it is also having an impact on the relative strength of U.S. companies.
- In nominal terms, S&P 500 sales growth still seems to be robust, at 8.0% annual growth. However, with inflation ending the fourth quarter at 6.5%, the real S&P 500 sales growth is closer to a paltry 1.5%. Furthermore, the S&P 500 sales growth line is beginning to converge with CPI, which would imply zero real growth. Historically, the S&P 500 sales growth line has crossed below the CPI line at the start of, or during, a recession followed by nominal sales growth also turning negative.
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