Yesterday, the first important report of this week was published in the United States. We are talking about American inflation, which has recently caused a lot of questions and discussions. The fact is that the level of consumer prices increased in July by 5.4% YoY, which is the maximum value for the last 13 years. Just 0.3% more and inflation will break the record of the last 30 years. Thus, for stock markets, rising inflation is a really good reason to start worrying. It should be understood that the stock market can be divided into two categories of companies: 1) Companies whose shares bring a good dividend profit and they are bought because of it. 2) Companies whose shares do not bring high dividends, but are constantly becoming more expensive in the long term (Apple, Tesla, Microsoft). However, in any case, many investors are looking at dividend payments. And it turns out that at the moment, in the absolute majority of cases, the level of dividends is lower than the level of inflation.
Simply put, investors do not receive any real profit from buying shares and can only rely on the fact that in the future they will grow in price and they will be able to sell more expensive shares than they buy. Therefore, inflation in the literal sense of the word devalues money, and is also completely unprofitable for the stock market. At the moment, this negative effect continues to be leveled by the Fed, which continues to pour hundreds of billions of dollars into the economy, some of which settles on the stock market. Thus, despite the fact that the US economy has experienced a strong decline and a difficult recovery in the last year and a half, US stock indices are doing just fine now. The S&P 500 and Dow Jones updated their absolute highs yesterday once again, while the NASDAQ Composite is not far from its highs. Thus, by and large, inflation does not mean anything for the US stock market right now. Investors still continue to buy shares, despite the consumer price index. Perhaps, they really believe Jerome Powell, who has repeatedly stated that the acceleration of inflation is a temporary phenomenon and it will end in 2022. Perhaps, investors simply do not see a decent alternative to stocks. Although, for example, bitcoin is also growing at this time, probably because many investors are rushing to buy it until a new bill has been passed in the United States that will regulate the cryptocurrency sphere and all its participants. In addition, bitcoin remains a means of salvation from inflation, since its growth is much higher than inflation. At the same time, bitcoin remains a super-risky asset, capable of collapsing down at any moment. Thus, we believe that all the key US stock indices will continue to grow until the Fed stops pouring hundreds of billions of dollars into its economy.