One of the central themes of the past few months has been inflation. It is also a significant theme as earnings reports continue to file in. One of the biggest questions ahead of earnings season was how supply chain challenges and inflation would affect corporate margins. The answer is, so far, so good. But should we be concerned with inflation and its effect on the S&P 500 (SPY) going forward? I’ll discuss this and more below….(Please enjoy this updated version of my weekly commentary published October 27, 2021 from the POWR Value newsletter).
As markets continue to hit new heights, one concern lurking in the shadows is inflation. Last year, many market "gurus" predicted that inflation wouldn't be an issue. But it is undoubtedly a reality now. While it may be transitory, I do expect it to last into next year.
The question right now is how long does transitory really mean. Fed Chair Powell has even recently noted that inflation might be stickier than previously forecasted. In fact, he recently commented, "Supply-side constraints have gotten worse. The risks are clearly now to longer and more-persistent bottlenecks, and thus to higher inflation."