Inflation and Stocks Are Both Up, and That’s Stirring Some Worries
But in the wake of this month’s correction, and the ensuing recovery in stock prices, some market experts are saying
that stocks can continue to rally even if interest rates and inflation rise, as they did Wednesday.
The Harvard economist Martin Feldstein, who has long studied the complex relationship among interest rates, inflation and stock prices, has been warning for months
that markets are highly vulnerable to rate increases and inflation.
It’s long been a truism that higher inflation and its close cousin, higher interest rates, are deadly for stock prices.
But if the Fed is forced to raise rates to ward off inflation, the risks of a recession — and lower earnings and stock prices — are much greater.
“When interest rates rise back to normal levels, share prices are also likely to revert to previous norms,” Mr. Feldstein told me this week.
Mr. Stack recently lowered the stock portion of his model portfolio to 72 percent
from 82 percent out of concern over high valuations and rising rates.