Inflation abating from a 40-year high could be positive for stocks, according to Goldman Sachs.
Markets recovered following a government report that showed the pace of inflation slowed a bit in April, due to decreasing gas and other macroeconomic factors.
Goldman analysts said history suggests the markets benefit when inflation shows signs of peaking.
“The market usually falls in the run up to the peak in headline inflation, just as we have seen in recent months,” a team of analysts led by Sharon Bell said in a note. “But after the peaks, there is a little more variance and on average the market does recover.”
In 13 inflation runs since 1951, the market was up 12 months later nine times. The biggest surge was a 33.2% increase from the March 1980 top; the worst was a 17.3% plunge from the January 2001 peak, during the dotcom bubble.
“In truth the peak in inflation might be helpful but equities really need other supports, especially if investors fear a sharper downturn,” Goldman’s team wrote.
