Nonsense. We spoke about the correlation of inflation and equity returns. Clear negative correlation. But don't believe me, believe the facts and numbers. Inflation overall is significantly negatively correlated to equity prices. https://www.sciencedirect.com/science/article/abs/pii/S0275531916301337 "In particular, the correlations are significantly positive in the 1840s, 1860s, 1930s and 2011, and significantly negative otherwise". If you have any insight into trading then it should be apparent to you that 2011 was a stark outlier. So was the 1930s after the 1929 crash. I have not investigated earlier periods as they do not seem to be relevant to recent times due to completely different market mechanics. But of course you won't be corrected and just butt out in silence as usual.
Moderate (that is, manageable) inflation allows Companies and Businesses to incrementally raise the prices for their goods and services. Simple as that. In a zero or very low inflation environment, Companies and Businesses that raise prices risk losing market share to competitors. This is seen as corrosive because as wages and costs rise it eats into Company net revenues. In a hyperinflation economy (think present day Venezuela or post WW-1 Germany) raising prices for goods and services accordingly just amplifies the effect. And there's just no practical way to keep up.
That study looked at "real" stock market returns (S&P 500 minus the CPI). That's not the same as actual stock market returns vs. more accurate inflation (1980 based CPI formula). Obviously positive correlation there as newly printed money goes into stocks first.
The central bank will try to maintain measurable inflation, high inflation is not good for employees with fixed salaries, related to stock prices, maybe complex for interconnection, the effect of inflation is more influential on expenses.
It does not change the fact that consumer price inflation negatively correlates with equity returns in the most recent decades for most of the time. How you pin and normalize it is just games, played.
So I think you are now deciding that this business of inflation and equities is a little more complicated than it might have first appeared. The first order effect is as I pointed out. Both anticipation of inflation and actual mild inflation generally has the effect of inflating equity prices, and largely for the reason I illustrated in my explanation suited for a fifth grader. There is also some positive feedback via nominally higher earnings. But beyond that it gets more complicated. You're very likely to see additional effects illustrated soon enough, as I anticipate inflation kicking up more. We already have some inflation and that has, so far, helped push up equities, but the main driver of stock prices in the Trump era, however, was stepped up outside money (big deficits), a weakened dollar due to very low rates, and Soros reflexivity (which see). What then might cause stocks to decline in an inflationary environment? Such an effect is not due to inflation per se but to the feds response to it. If the fed senses inflation is going higher than they would like, their standard response is to sell bonds . This drains reserve accounts, pushes down bond prices,raises rates, and strengthens the dollar. It has a cooling effect on the economy, weak at first, and a similar effect on the equities market. During the early phase of the great recession, rather than selling bonds the fed was a big buyer. We were in a deep recession, and there was roughly zero inflation. Selling bonds caused bank reserve accounts to swell, but there was little demand for credit. Rates plummeted to just short of zero. Low rates weaken the dollar and cause it to be sold (see the dollar futures for that period). What happened to the market? It began to recover and move sharply upward. If you look at dollar futures during the period of heavy Central Bank QE, you will note the futures and stock market moving in lock step, but in opposition: dollar down, market up. As the dollar was declining in value in the forex markets, equities were rising reflecting the weaker dollar, but curiously there was little price inflation other than in equities, because demand for goods and services was down. Rates quickly dropped to near zero and stayed down there for a protracted period. In the latter stages of the recovery we began to reach full employment. If you examine the dollar futures for that period, you will note that the hold the futures earlier exhibited on the equities market began to weaken as additional factors began to play a more prominent role. At full employment, that we had prior to the pandemic, and with moderate to low inflation, the market began to take off, as the fed kept rates historically low. We are now, I think, approaching the end off this period of rapid market appreciation in combination with low inflation and a relatively weak dollar because of extraordinarily low rates. The market has been driven by the factors I mentioned at the beginning of my post, Soros reflexivity and, of course, ever present human irrationality... What will be next. Please tell me if you know! But I can say what I think is most probable. The great job the present administration is doing in managing covid vaccination should lift us largely out of the pandemic by Fall. The stimulus package, however, is very likely to cause an acceleration in inflation later this year. That will depend on the rate of recovery from the pandemic and how long the fed waits before they return to bond selling and begin to drain reserves. This will drive bond prices down and rates up. [we are seeing the anticipation of this right now in the bond markets]. Bond selling by the fed should have a cooling effect on the market and we should get a correction, perhaps sooner than expected based on anticipation of fed action. When the fed sells bonds and drains excess reserves, what they are doing in effect is side tracking some of the money ("outside money", as opposed to "inside" or credit money) that the Treasury spent into the economy as part of the stimulus. I am pretty sure the fed will have to sell at some point to keep inflation under control. The economy should really boom under Democratic leadership, as the Democrats always favor demand side stimulus. The danger is too much outside money left in the economy for too long, that will cause excessive inflation.
And it remains unchanged, equity returns correlate negatively with inflation. I explained how that relationship in economic terms works in my first post of this thread. You are simply wrong to suggest that inflation positively correlates with equity returns. Facts and numbers contradict you.
Actually you read an abstract from an Elsevier publication. The article itself is relative expensive, and I doubt you took the time to photocopy it at your local University Library. You can't tell much from the abstract other than that the authors found that in certain decades through the 1930s and in 2011 the correlation was positive (inflation is correlated with higher prices) and in more recent decades (2011 being the exception) the correlation was negative (inflation was correlated with lower stock prices). That is as much as can be gleaned from the abstract. Frankly, had you taken the time to read my long response to you, you would have learned much more. Please see my errata notice below.
*****Notice Re Post #16 Above*****There is an error in my post #16, three posts above this one. In the second line of the fourth paragraph replace "Selling" with "Buying". Obviously , only when the fed is buying will reserves by bolstered. When they are selling, reserves are drained.
I read through the paper. I did not need to make any photocopies. So you glimpsed over the abstract and concluded that your anonymous ET post is more grounded in facts and evidence than an academic paper you have never read. I see. You are pretty full of yourself, do you realize that? Also your post above is full of factual data errors. Some parts are just a rehash of what I already stated and in some other parts you directly contradict correlations over the past 30 years.