Why US inflation's 3.8% surge could shatter the stock market's rally
Inflation in the US is climbing once again, raising concerns about the wisdom of stock investments. Many assume equities protect against rising prices, but history and recent warnings suggest otherwise. Analysts now question whether the current market rally is built on a dangerous misunderstanding. New US data shows inflation picking up speed. Headline inflation hit 3.8% in April, while core inflation rose to 2.8%. Despite these figures, investors keep pouring money into stocks, betting they will shield their wealth.
This belief may be flawed. Historical trends reveal that equities often struggle during inflationary periods. In the 1970s, high inflation led to weak stock performance, pushing investors to see equities as high-risk assets. Meanwhile, commodities and energy stocks thrived, hinting at a possible repeat today. The issue lies in how long it takes for stocks to deliver returns. Growth and tech shares, especially those tied to AI, rely on profits far in the future. This long wait time—called duration—makes them vulnerable when inflation and interest rates rise. Analyst Simon White has warned that trusting stocks as an inflation hedge could be one of the biggest mistakes in today’s market.
The latest inflation figures challenge the idea that stocks are a safe bet against rising prices. With tech and growth shares facing particular risks, some experts now predict a shift toward commodities. If inflation stays high, the current market rally could lose its footing.
