What Will Happen to the Stock Market When US Inflation Eases?

There Have Been 8 Periods of Inflation Decline Since 2000
Stock Market Rises Except During 3 Economic Crisis Periods

[Asia Economy Reporter Ji Yeon-jin] As the possibility of peak inflation in the United States increases, there are calls for investment strategies to prepare for deflation.

According to Kyobo Securities on the 10th, the U.S. core Consumer Price Index (CPI) and Personal Consumption Expenditures (PCE) price index have been showing a declining trend since March and February of this year, respectively. The Consumer Price Index (CPI) in July rose 8.5% year-on-year, showing a slower increase compared to the previous month (9.1%).

The August CPI, scheduled to be announced on the 13th of this month, is expected by the market to decrease by 0.1% compared to the previous month. Although there are only two forecasts for the year-on-year figure, they are expected to be 8.2% and 8.1%, respectively, indicating high uncertainty but also raising expectations that inflation will slow down.

Kang Min-seok, a researcher at Kyobo Securities, stated, "Since 2000, there have been about eight periods when inflation peaked and declined. Except for sharp declines during economic crises such as the 2000 IT bubble burst, the 2008 global financial crisis, and COVID-19 (periods 1, 3, and 8), the stock market showed favorable performance."

However, the Eurozone's CPI and core CPI, announced on the 31st of last month, recorded 9.1% and 4.3%, respectively, indicating intensified inflationary pressure. The Netherlands TTF natural gas futures, which had recently shown signs of easing, surged 30% following Russia's announcement of an indefinite suspension of Nord Stream 1 gas supply, fueling price increases.

Researcher Kang said, "It is still too early to say that the currently high natural gas prices have stabilized," adding, "Also, with the possibility of a 75 basis point increase at the ECB monetary policy meeting scheduled for the 8th, investment in Europe is still considered premature."