Falling Inflation Fuels New Stock Market Rally As Rates Decline
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Inflation rose to 40-year highs in 2022 due to pandemic disruptions, government stimulus, and Fed policies. This prompted rapid Fed interest rate hikes.
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Inflation fell significantly in 2023 and early 2024 thanks to those rate hikes cooling the economy. We haven't seen declines like this since 2009.
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Similar inflation declines in 2009 and 1982 were followed by long stock market winning streaks as rates fell. This sparked increased investing as cash yields declined.
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The S&P 500 entered a new bull market in 2023 with a 26.3% gain. If history repeats, this could mark the beginning of a multi-year winning streak.
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Inflation remains on a downward trend toward the Fed's 2% target. This suggests rates could fall further, which reduces business costs and may fuel faster earnings growth.