How Tom Thinks Inflation Might Impact the Stock Market.
Transcript:
Katie Nealis: What do you think about inflation and the impact it might have on the stock market?
Tom Vaughan: Yeah. Okay. Yeah. So that the inflation is going to be very interesting, we really haven’t had much in the way of inflation for a really long time. And, you know, we’re I mean, we’re not used to it, it does have to be put into context. So well, you know, right now, everybody’s talking about inflation, because we just did put out this huge stimulus bill and the Treasury, you know, the 10. year
Treasury went from about point 6%, back in August, all the way up to high of 1.75%, just recently, and that’s a big gain, that’s a big jump as far as that goes. Now, having said that, the 10 year treasuries at 3%, before the pandemic started. And that’s still a fairly low yield on the 10 year Treasury, which is kind of a representation of of inflationary pressure. The other thing to consider, too, is that we had a high inflation back in 1974, was 12.2%, for that year. So that was, that’s what people are thinking about, especially money managers is that period of time when inflation really ran.
Right now, the projection is 2.4%. For this year, I think that’s going to be low. That’s from the Federal Reserve. But it’s still a long ways away from 12.2. Even if it’s higher than that, I think the market will struggle, if inflation comes very rapidly and very quickly. But once we get through that struggle, and yields get set to certain levels, I think then we’ll start to see these higher earnings coming through. And so I wouldn’t be surprised to see some softness during that period of time if we do have high inflation, but nothing that I would call a bear market in that period, because it’s most likely temporary.
You know, once all these people have kind of exhausted themselves from this pent up demand, and the supply has grown to kind of meet that then I think pricing comes back down. And the Federal Reserve actually has a projection for 2022 where inflation is at 2% on their measure, so they’re expecting it to be higher this year, and then go back down again next year. So you know, we’ll have to see how that works out. But systemic inflation at 12% is a problem for the stock market, no doubt. But just you know, we’ll have to wait and see you know, how this plays out.