How high inflation effects stock market ?

Question

How high inflation effects stock market ?

Answer 1

Don't try to figure out the stock market.  Try to figure out stocks.

High inflation means that the value of assets will go up in nominal terms, so companies that have assets, especially natural resources, will do well.

High inflation means that interest rates will go up as lenders seek to protect themselves.  Companies that are dependent on debt will do poorly.

Examples charts are ANR and MER below.

Answer 2

High inflation impacts the stock market in several ways, although, its worth noting that the market isn't reacting necessarily on what's happening today, but typically trades 3-6 months ahead of anticipated economic conditions. History tells us this over and over. So, bad economy, not necessarily bad times for the market, which is why you typically will see the market doing well during the last 1/3rd of a recession when all the media/individuals feel the most gloom and doom, because the market is trading anticipating the inevitable economic recovery.

But in reference to your question. Inflation certainly is an issue for central banks because their primary mission is keeping inflation under control, and their primary way of doing this is raising interest rates, which tends to raise the cost of borrowing for companies, and individuals.

However, another way it is a problem is for the bulk of companies that feel this in their cost of goods they produce. If it takes an extra 3-5 % to make a table, or move a box from chicago to LA, well that eats into their profit margin, and either they have to past the cost along to the consumer, who eventually will buy less, or they have to eat the cost, and their profits go down, and investors react by selling their stocks.

Answer 3

high inflation...= high interest rates by central banks.. = increase cost of borrowing by company.. and investors.. = company performing not as well.. = stock price comes down.

another way of looking at it is.. high inflation = high interest rate = ppl tend to save more due to attractive interest rates. =)

thats about it.

Answer 4

High Inflation - Poor picture on the economy - Bad time for stock markets.

See how inflation/high agriculture prices effect stock market here - http://myfinancetimes.com/2008/05/30/boo...

Answer 5

It depends on what kind of inflation you are talking about.  You can have inflation of prices without any rise in wages.  And you can have inflation in both prices and wages.

I'd say that inflation in prices without a rise in wages is bad for stock prices.  Because in such a situation people have no choice but to decrease their consumption of goods.  Which leads to a downward spiral of decreasing production and higher unemployment that causes people to spend even less.

But inflation where both prices and wages are rising perhaps is not so bad for company profits and for stock prices.  Because increased labor costs are offset by increased profits.   Such inflation may not be good for growth in profits.  But it's ok for keeping profits stable.  Which usually means that stock prices stay in a trading range without going up or down much.