S&P 500 Flirts With 1200, Gets Number, Never Calls

The market’s morning surge is holding up well. The S&P 500 is holding just shy of 1200 and the cyclicals are leading the way. The Morgan Stanley Index of Cyclical (^CYC) stocks is up 2% right now. Also, small-caps continue to do well. The Russell 2000 (^RUT) is up 2.2% so far today.

All 20 stocks on the Buy List are trading higher today, although as a whole we’re trailing the S&P 500 1.49% to 1.73%.

I’m inclined to believe that the market liked the tame inflation report from yesterday. Also, today’s Philly Fed news was very good.

A few years ago, I looked at inflation’s impact on the stock market. Here’s what I found:

Going back to 1926, there have been 72 months of deflation coming in below -5%. The inflation-adjusted total return for that period is an annualized loss of -9.6%.

Here’s how it breaks out.

Inflation Rate…………Real Stock Returns (annualized)
Below -5%……………………………..-9.6%
Between 0% and -5%……………….20.9%
No Inflation…………………………..17.1%
Between 0% and 2%……………….10.0%
Between 2% and 5%………………..14.1%
Between 5% and 7.5%……………..-0.2%
Between 7.5% and 10%…………….-2.8%
Over 10%…………………………….-11.1

Basically, when inflation is over 5% or under -5%, the market averages a real 5.5% loss. When inflation is between -5% and 5%, it average a 15% gain.

Yesterday’s CPI came in at 0.2%. For the last year, the CPI is up 1.17%.

Posted by on November 18th, 2010 at 1:32 pm


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