During the recent correction there were many articles titled similarly to this: "U.S. stocks open lower as CPI underlines inflation fears"
My question is, why would inflation cause stocks to drop? Logically, inflation should cause stock prices to nominally rise.
Inflation (in this context) is the loss of real value of a currency, so it only makes sense one of the things that would become relatively more expensive is assets, such as stocks.
Inflation encourages spending, which is good for businesses bottom line. In addition, the it reduces real wages, which means capital can return higher amounts. It also reduces the value of any fixed interest rate debt held by the corporation and improves their balance sheet. In most cases margins are not squeezed that much. The extra is just passed to the consumer.
So, based on this, it seems like stocks would basically be neutral to inflation or only slightly negatively impacted. Why would anyone sell off stocks for dollars when dollars are losing value?
None of it makes sense. Please shed some light.
Thank you for the replies. It has led me to further understanding
Submitted February 26, 2018 at 04:46PM by OnlyTheRealAdvice http://ift.tt/2otZxcn
