Wall Street's inflation spectre

Article Abstract:

A rise in US inflation could mean a drop in stock prices, so figures to be released in Jul 1999 are significant. The traditional view is that higher inflation leads to expectations that interest rates will rise, which could lead to a recession and pressure on earnings. Inflation is also seen as increasing uncertainty and pushing up bond yields. There are other arguments such as the view that inflation expectations dropped from 1995 when earnings expections rose, but that it may be dangerous to generalize about this correlation. The importance of inflation isunclear, but there does appear to be a link with stock prices.

Prices, Inflation (Finance), Inflation (Economics)

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New fears from an old debate

Article Abstract:

US stock prices may have stagnated as a result of changes in the money supply, or because investors' attitudes to risk have changed. An increase in the money supply may lead to investors buying more stocks, while a contraction can lead to the reverse. The money supply increased in 1991 and 1998 as a result of Federal Reserve actions, while prices dropped in 1994 when policies were tightened. Tighter policies in 1999 could lead to a stock price fall. Liquidity alone will not cause stock prices to rise. Attitudes to risk can change, and prices may either fall or rise if this is the key factor affecting stock prices.

Money supply

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Time to be wary

Article Abstract:

Swiss Bank Corp argues that world equity market have priced in good news and are becoming complacent. Earning expectations may be over-optimistic and earnings cannot rise more than money gross domestic product over the long term. Inflationary pressures could increase as spare capacity is eroded, and interest rates could rise. The equity risk premia could rise, affecting stock prices. Bond markets should not react badly when official interest rates are raised if inflation is low.

Interest rates, Capital market, Capital markets

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