Michael E. Schroer, CFA MANAGING PARTNER & CHIEF INVESTMENT OFFICER | RENAISSANCE INVESTMENT MANAGEMENT Highlights A year ago Mike Schroer, CFA, wrote “What Happens When Inflation Peaks?” in which he noted that historically, when the inflation rate peaks at levels over 5%, the stock market tends to perform well going forward. See the chart and table that refresh the data shown in last year’s update. After reaching almost 9% in June of last year, the rate of U.S. inflation has fallen significantly to 3.2%. Over the first 12 months since inflation peaked in June 2022, the S&P 500 posted a price gain of 17.6%, and through November 17, the S&P is 19.2% higher than its June 30, 2022 level. This gain was achieved despite the Federal Reserve raising interest rates eight times over the period, increasing the Fed Funds rate from a targeted 1.5%–1.75% to its current range of 5.25%–5.50%. Clearly, a reduction in inflation from high levels is generally welcomed by the stock market, even when suffering the negative effects of high interest rates. Annual Inflation Rolling 12-Month Change in CPI1 1/31/1948–10/31/2023 Stock Market Performance After Peaks in Inflation, 1/31/1948–10/31/2023 As the table illustrates, historically, stock market gains have generally extended over the next 3 and 5 years following a peak in inflation as well. Economic and market cycles rarely repeat exactly, but thus far, the Fed has been winning the battle against inflation, which bodes well for the stock market over the long term. LEARN MORE ABOUT RENAISSANCE
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