The Rising Influence of Rising Affluence

[santafe2]

Thanks for the reply. I should have said the energy component was very similar and your point is an important one. When inflation began the PPI numbers were much higher than CPI numbers as companies were initially reluctant to pass on all the cost increase to consumers. It's like a wave peaking first for business, then the consumer, then back to business as consumers want an income adjustment, then business raises prices again and begins to lay off workers to mitigate profit declines. Then, maybe a recession.

Looking at inflation costs to investors the CPI has moved up 16.5% since January of 2020 so more than half or our average ~8% gains have been eaten by inflation. As many others do, I measure the SPX from January 1, 1950. That cuts out the WWII gains and the late 1940s market malaise while the economy adjusted to a post war reality. Looking at the pre-pandemic peak of 3,386 the SPX was running behind the expected 3,664. By January 2022 the SPX had peaked at 4,796, well ahead of the expected 4,274. If we're right on target by the end of this year the market will end at 4,985. I don't expect that as we'll still be working though inflation this year but we may well hit 5,383 by January 2025. If anyone is curious, we should hit SPX 10,000 in January of 2033 if this 73 year relationship holds. And one more note, since January 1950 inflation has averaged ~3.7%.

Data source, Macrotrends:
https://www.macrotrends.net/2324/sp-500-historical-chart-data